CEEMEA Economics Weekly: Down to the Wire

Research evidence excerpt

CEEMEA Economics Weekly: Down to the Wire

oach and readiness to tighten monetary conditions in the event of a

significant and persistent deterioration in the inflation outlook. The MPC continues to focus particularly on upside risks to the

inflation outlook. The statement brought some changes to the growth and inflation narrative, which suggest to us that the CBT is

increasing the weight of domestic demand weakness in its reaction function, at the expense of second-round risks.

• The CBT rates decision and cautious forward guidance, with tightening bias, were in line with our expectations. We believe the

statement confirmed our observation from April that the central bank is increasingly trying to strike a balance between weaker

economic growth and pro-inflationary risks. Yet, we perceive the CBT reaction function as still being skewed towards ensuring

price stability.

• We maintain our policy rate forecast unchanged for the central bank to remain on hold until 4Q26 when we expect it to resume its

cautious easing cycle by cutting its key policy rate by 200bp to 35%. Looking into 2027, we expect the CBT to lower its key policy

rate gradually to 27.50% by year-end. Risks to our forecast remain skewed to the upside, with further increases in energy

commodity prices or tighter global monetary conditions likely to result in monetary tightening or higher rates for longer.

Hungary | A downside CPI surprise for May: The May CPI came in at 1.8%Y, down from 2.1%Y in April and below our expectations for

2.1%Y, consensus for 2.2%Y, and the NBH forecast for 3%Y. Note that the NBH forecast assumed a phaseout of the price control measures

in May but these remain in place.

• The NBH-defined food inflation fell to -2.4%Y from -1.1%Y in April, some 40bp below our forecast for -2%Y.