Central European Daily

In line with our expectations, the Monetary Council lowered NBH´s base rate by 10bp yesterday, from 2.7 % to 2.6 %. Moreover, the NBH published its updated forecast of CPI and GDP growth in 2014 and 2015. The inflation forecast slid from 1.3 % to 0.7 % YoY for 2014, but rose from 2.8 % to 3.0 % YoY for 2015 at the same time. Regarding GDP growth, changes in the outlook are miniscule. The growth is seen at 2.1 % YoY in 2014 and 2.5% YoY in 2015. In an accompanying statement, The Council argued that it saw no significant inflationary pressures present in the Hungarian economy on the relevant time horizon but the negative output gap may close within the next 6 quarters. With respect to these findings as well as recent changes in international environment, the Council modified its tone and emphasized that the base rate was close to its optimal level and neither further worsening in international sentiment would trigger another rate cut automatically. In our view, the statement says that if EURHUF and bond yields stay close to their current levels, another 10bps rate cut may be delivered in April and conclude the current rate cut cycle. However, if economic conditions deteriorate in the meantime, yesterday´s cut was already the last one.