On the monetary policy front, we see the chances of a 100 basis point rate cut increasing significantly. In October, there were three options on the table when the Monetary Council decided on the size of the easing: 50, 75 or 100 basis points. The October figures for both headline and core inflation were in the lower, more favorable half of the range forecast in the September Inflation Report. As a result, we believe the 50 basis point option may be ruled out come the November rate-setting meeting.
If EUR/HUF can maintain the recent level of 377-378 (which is 1.6% stronger than at the end of October), the single-digit inflation figure may be compelling enough for some members of the Monetary Council opt for a cut of 100 basis points. instead of continuing with 75bps. Although it is too early to make a high-conviction call (especially after Deputy Governor Barnabás Virág’s recent message underscoring the need for a disciplined monetary policy), the latest price and market stability data point in the direction of a possible adjustment in the pace of flexibility.
But to be fair, it doesn’t matter whether the latest inflation reading is just below or above 10%. Politically it may matter, but from an economic policy perspective the CPI target is still 3% and there is a long way to go to get there. Today’s data has not changed our long-term monetary policy view, i.e. we still see the need for a +200bp real interest rate environment to keep the HUF stable and achieve the inflation target over the horizon. monetary politics. The only thing that may change after today’s CPI result is the short-term trajectory of policy rate easing to the terminal rate of 7-8%, in line with our expected inflation rate of 5-6% in 2024 .