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City sees Hungary’s policy rate peak at 9%

Food

Hungary's “ugly” CPI figures from May significantly raised the risks of a rate hike as early as this month and the central bank's policy rate will likely peak at 9%c, London-based analysts said.

The headline year-on-year figure surprised the market on the upside at 7% as City-based analysts polled by Econews had expected the figure to come in between 6.4% and 6.8%, with forecasts averaging at 6.65%.

Jacqueline Madu of Emerging Markets Economics Research at Credit Suisse in London told Econews after the CPI data release that the risk of a rate hike by the central bank in June, although not a certainty, has “definitely increased.”

She also did not rule out further rate hikes later this year. The higher-than-expected May figures mean that “the Monetary Council will stay in a tightening mode,” she added.

Asked about the possible inflationary path going forward, she said she expects inflation to stay close to 7% until the end of the third quarter, but food prices will “hopefully” start to bring down the headline numbers thereafter.

The path of oil prices and their impact remain uncertain, though, she added.

Gillian Edgeworth of Deutsche Bank in London also told Econews that the May CPI figures significantly increased the risk of a 25-basis-point (bps) rate hike in June which is now the bank's baseline scenario.

She said she expects a total of 50bps in rate hikes this year.

Asked when she sees Hungary's CPI path take a downward turn, she said any meaningful slowdown is set to be “pretty much a Q4 story.”

Dresdner Kleinwort branded the May CPI figures “ugly,” and said that while the acceleration in food and energy costs was not surprising, the magnitude of the increase was.

It said the CPI release will likely “accentuate” the policy council’s concerns over the long term outlook.

If the April earnings release, due next week, shows continuing strong growth, then the case for a 25bps hike already this month will be “very convincing,” Dresdner said, forecasting a 10% wage rise reading year-on-year.

“We expect the peak for this (monetary tightening) cycle at 9.00%, to be reached in coming months ... we see scope for a monetary loosening from early next year,” it added. (MTI – Econews)

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