“The new forecast reinforces our view that rates should be cut in Poland, though does not remove any of the skepticism, while in Hungary it increases risks of more than 50 bp in cuts” the report says.

Nomura does not see concern regarding deflation, because they believe that “non-tradables still show there are non-classic deflationary tendencies, demand-led delays in purchases and shifts in supply pricing”.

“The longer negative inflation lasts, the higher the likelihood of real deflation emerging; however, stronger growth in … Hungary means that there is no demand effect, but for now we need to be aware of that risk” Nomura said.

According to Nomura, GDP data in Hungary came in very strong at 3.4% y.o.y. for Q4 vs. 2.7% consensus estimates, which the financial company finds surprising, as it was stronger than the previous data, probably driven by agriculture and net trade. Nomura foresees that Hungary’s central bank will do little to change its inflation forecast or its unwillingness to cut rates from March.