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Hungarian inflation may go above 3% next year, OTP says

With consumer inflation data due to be published on Wednesday by the Central Statistical Office (KSH), analysts forecast a rate of between 3.1% and 3.3%. In addition, the central bank expects a sovereign rating upgrade soon.

Fuel prices have grown significantly, while prices of food and products with excise taxes have gone lower. Taking these factors into consideration, OTP Bank expects inflation to be 3.1%, while Bloomberg forecasts 3.3%.

Gábor Dunai, a macroanalyst at OTP Bank, told business daily Világgazdaság that, beginning from August, fuel prices will have a lower impact on inflation, therefore the bank expects inflation to go as low as 2% by the end of this year. However, by mid-2019, inflation may rise above 3%, which will probably trigger countermeasures from the National Bank of Hungary (MNB), Dunai added.

Meanwhile, MNB Deputy Governor Márton Nagy told state news wire MTI that Hungary is due for another upgrade of its sovereign rating, which could take place as soon as next week, when a review by Standard & Poorʼs is scheduled.

All three big ratings agencies have left Hungaryʼs ratings one notch above the investment grade threshold since bumping them up from speculative grade in 2016. S&P is scheduled to review Hungaryʼs sovereign rating on August 17. Reviews by Fitch and Moodyʼs are set to follow on August 31 and November 23, respectively.

Nagy said that the ratings agenciesʼ methodologies and the justifications for their decisions have become much more transparent in recent years, which allows those factors that could result in a ratings action to be determined precisely. On the basis of these, Hungaryʼs economic fundamentals would put the country up another notch, Nagy said.

In the case of S&P, the assessment of the banking system could be the decisive factor for an upgrade. The ratings agency considers the declining stock of non-performing loans (NPLs), sustainable improvement in lending, and a reduction in the banking sectorʼs dependence on external financing to be of prime importance. S&P has noted improvements in these areas in its past two reviews of Hungary, and experts calculate that further favorable changes in the past year give cause for confidence, Nagy added.