Hungarian CPI re-entered deflation in March, with headline CPI falling by -0.2% y/y. All underlying inflation measures calculated by MNB also dipped, with the main one – core inflation net of tax changes – dropping to +1% from a steady 1.1%-1.3% during the past several months.
The MNB has revised down its core inflation forecast to 1.7% for this year, down from 2.4% earlier, but there is still downside risk to MNB's core inflation forecast. We would need to witness inflation pressure picking up across Europe soon for such forecasts to be fulfilled – but so far, global demand conditions do not point in the direction of such a pick up.
“The inflation figure may confirm the NBH’s view about the necessity of the rate cuts, so we maintain our view that the Monetary Council continues the rate cut cycle in the following months. We expect three more steps (April, May and June) and so the base rate might be moderated to 0.75%.” notes KBC Bank in a research note.
Without a sudden increase of oil prices, inflation is expected to fall further in the coming months below -0.5% and it is likely to remain in negative territory till August. The forint eased on Friday as Hungary's inflation slipped back into the negative. It may remain shaky in the months to come due to policy risks.
“We have just lowered our year-end policy rate forecast for Hungary from 1% to 0.75%. We see EUR-HUF at 320.00 by the end of 2016.” said Commerzbank in a research note.
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