Following today’s cut in Hungarian interest rates, we are revising our year-end rate forecast to 3.00% from 3.50%. With inflation below target and the economic recovery still fragile, it looks like the dovish MPC will seek to ease policy as far as it can. A large external financing requirement remains a concern. However, unlike in most EMs where the potential “tapering” of QE in the US is a major concern, Hungary’s ability to attract capital inflows will largely depend on the improvement in sentiment in the euro-zone being sustained.
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