The Monetary Council (MC) of Hungary kept its key policy interest rate (3-month deposit rate; +0.9% since May 2016) and the overnight deposit rate (-0.05%) unchanged this week. Headline consumer price inflation edged up to 2.9% y/y in October (from 2.8% in September) but was down from the 76-month highs of 3.9% in April and May. However, core inflation rose to 4% in October (the same as in May and up from 3.9% in September) though the MC noted that indirect tax effects contributed 0.3pp to that rate. The MC also noted that “buoyant domestic demand is boosting” inflation but seems to continue to ignore that overheating concerns remain on the agenda. Hungary’s real GDP rose by +5% y/y in Q3, well above peers in the CEE region, while the unemployment rate remained close to its historical low, at 3.5% in Q3 2019. Nonetheless, we expect average headline inflation to remain close to the cen¬ter of the MC’s 3% ± 1pp target range until end-2020, though some volatility due to fuel price fluctuations is likely.
