Danske Bank expects Hungary’s MNB to continue monetary easing cycle

CPI slowed to 6.4% year-on-year in September from 8.3% year-on-year in August. This was above the consensus forecast of 6.3% year-on-year and above his expectation of 6.2% year-on-year. The drop in inflation mostly can be attributed to a fairly strong base, he said, but noted that food prices rose further; in line with the regional trend of significantly higher food prices. Looking ahead, the analyst stated that he would expect inflation to drop further on the back of very weak domestic demand, but increasingly the rise in food prices not only in Hungary, but also in other CEE countries, is beginning to worry him.

Rising food prices will clearly contribute to increasing inflationary pressures, he said, but suggested that it will also reduce growth in real incomes and hence could weigh on private consumption growth. This could give rise to a policy dilemma for the CEE central bank; between reacting to higher inflation or lower growth, Christensen commented. Even though inflation came out above the consensus expectation, the analyst stated that he continues to expect the Hungarian Central Bank (MNB) to continue its monetary easing cycle, but the MNB will also be cautious and will undoubtedly take a close look at the rise in food prices and the risk of this increasing inflation expectations. (rttnews)