Our assessment of inflation dynamics has improved in the short term, showing a lower year-end inflation rate than before. This is due to the 0.2% monthly deflation in the core reading, which caught us off guard. In addition to this, the latest balance of payments report (published on October 16) can be seen as a positive sign, as the current account balance ended August with a surplus of €205 million. Therefore, the outlook for the current account is promising as we expect it to end the year in a roughly balanced state.
Regarding market stability, we would like to highlight the resilience of the forint despite the continued strengthening of the dollar. Furthermore, the Hungarian currency is performing surprisingly well in the wake of the upward trend in global long-term rates. As far as the Central and Eastern European region is concerned, the results of the Polish elections will improve market sentiment regionally (or at least not add a new set of concerns), giving another helping hand to the National Bank of Hungary .
For now, the sharp rally in oil prices appears to have stopped (albeit at a relatively high level), which would otherwise have raised the risks of a slowdown in disinflation. However, we recognize that geopolitical risks are likely to remain in the Middle East, which could keep oil prices elevated until there is a clear reduction in tension.
Taking into account the latest developments (reduced inflation profile, encouraging current account data and Polish election results), we are updating our forecast and now see the NBH to cut the base rate by 50 basis points at the October meeting. Regarding the rest of the year, we see that the central bank will maintain this size, which reflects its caution and gradualness. As a result, we expect the base rate to end the year at 11.50%, 50 basis points lower than our previous estimate.