Economists at JP Morgan said that while their base case is that the National Bank of Hungary will stop cutting at 3 %, the risk of rate cuts to below 3 % has risen in recent weeks on the back of a major inflation surprise on the downside in October and benign market conditions.

Analysts at Royal Bank of Scotland (RBS) said they foresee a drop in headline inflation of about 1 percentage point from the latest utility price cuts. Given where headline inflation is at the moment, “we believe Hungary is very much at risk of deflation”.

“We expect policy rates to be cut by another five 20bps (steps) from here down to 2.4% over the next five meetings, with the last rate cut coming in March 2014”, they added.

Economists at Barclays noted that during the past 15 months, the NBH has cut its policy rate by a total of 360 basis points. However, headline inflation has declined by more, falling 510 basis points to 0.9%, well below the NBH’s 3% target, “providing the bank with ample reason to keep the cutting cycle going”.

“At this point we expect the NBH to cut its base rate by 20bp in November, December, and January 2014 to 2.8%.”

Source www.hungarymatters.hu

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