Good news on credit ratings, less so on inflation

HUNGARY - In Brief 12 Feb 2021 by Istvan Racz
Both S&P and Fitch Ratings have announced the affirmation of their BBB/Stable ratings on Hungary's long-term sovereign debt today. Both agencies expect a forceful bounce-back of the economy, with 4.6-4.9% recovery of real GDP, this year.CPI-inflation remained unchanged at 2.7% yoy in January. This looks all right, but core inflation rose to 4.2% yoy from December's 4% yoy, on the fact that the headline inflation rate was contained mainly by a slowdown of the rise by food prices. This latter fact is quite negative, as core inflation now exceeds the ceiling of the MNB's 2-4% tolerance range. The MNB's preferred core inflation measure, the one adjusted for changes in indirect taxes, remains significantly lower than the basic core inflation rate, but it also rose in January, to 3.5% yoy from 3.4% in December. This is just another fact explaining the MNB's recent relative tightness on interest rates and its apparent preference for a nominally stable EURHUF rate for the time being.For the immediate future, we expect the continuation of this MNB policy line, in view of the recent inflation data as well as rising fuel prices and the prospect of some economic recovery in the rest of 2021.

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