POLL-Hungary cenbank may fix Sept policy 'mistake' with bigger hike next week
By Gergely Szakacs
BUDAPEST, Nov 10 (Reuters) - The National Bank of Hungary (NBH) is widely expected to ramp up the pace of rate increases next Tuesday after larger-than-expected hikes by the Czech and Polish central banks and a surge in inflation that appears to have caught the NBH off guard.
Hungarian inflation jumped to 6.5% year-on-year in October, challenging the NBH's slow but steady approach to rate tightening after it slowed the pace of rate rises to 15 bps in September from 30 bps previously, and followed with another 15 bps hike in October.
Since last month's NBH meeting, Polish rate setters have surprised markets with a sharper-than-expected rate hike, while the Czech central bank delivered its biggest increase in 24 years, at 125 basis points, to bring its repo rate to a region-leading 2.75%.
The median forecast of 18 economists in a Nov. 8-10 Reuters survey projects the NBH raising its base rate by 30 bps to 2.1% next Tuesday, while the overnight deposit rate is seen rising by the same extent to 1.15%.
"Retrospectively it can be said, that the (NBH's) decision to slow down the rate hike cycle from September (i.e. to cut the monthly pace of rate hikes from 30bp to 15bp) was a mistake," Raiffeisen economist Zoltan Torok said in a note.
"We expect the correction of the rate policy to come at the upcoming rate setting meeting in next week," he said, projecting a 30 bps hike but adding that a bigger move could not be ruled out after the upside Czech and Polish surprises.
Twelve of the 18 economists polled said the NBH would lift its base rate by 30 bps. Five predicted that the bank would maintain the current 15 bps tightening pace, while one economist projected a 75 bps hike, taking the base rate to 2.55%.
After October's upside surprise in price growth, economists now forecast 2021 average inflation at 4.95%, up 25 basis points from last month's survey, while 2022 average inflation is seen at 4.5%, 60 basis points higher than just a month ago.
That makes the NBH's September projection for 3.4% to 3.8% inflation next year look optimistic and would mean price growth still overshooting the central bank's 2% to 4% target range again in 2022 after a large miss this year.
"We now forecast inflation to rise to +7.0% yoy next month," economists at Goldman Sachs said in a note. "A more durable decrease in inflation would require an easing of core goods inflation.
"We maintain that inflationary risks in the near term remain squarely skewed to the upside."
The higher inflation path is also feeding rate expectations, with the NBH base rate now seen at 2.4% at the end of this year, 30 basis points higher than last month, and 3.25% at the end of 2022, nearly a percentage point higher than in October's poll. (Reporting by Gergely Szakacs; Editing by Steve Orlofsky)
