January BOP data slightly disappointing, no rate cut likely on March 28

HUNGARY - In Brief 17 Mar 2023 by Istvan Racz

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Well, January BOP, published today, was not really splendid. If it had been only about the trade account, it would have been great, the annualised single-month deficit ratio falling to 1% of GDP from 2.8% in January 2022, the merchandise deficit doing reasonably well (stable in absolute terms, down a bit as a ratio), and services doing spectacularly. However, net factor income fully offset that improvement, its deficit rising to 4.5% of GDP in January, from 2.8% a year earlier. Here, investment income was the problem of course, as net FDI income (two-thirds of total) rose considerably, and net interest expenditure (the remaining part) grew more than threefold from last year. Even so, the current account deficit looked quite decent at 5.5% of GDP, down from 5.9% in January last year and from 7.8% in the whole of 2022. But the usual surplus on capital transfers, essentially development transfers from the EU, dropped to just 1% of GDP, from an unusually high 4.9% in January 2022. And even though errors and omissions did quite well this time, the net external financing requirement was still reported at 9.2% of GDP in January, up from 8.1% a year earlier and only slightly down from 9.7% in the whole of 2022. Below is a summary chart, showing annualised ratio-to-GDP data for selected main categories (data from the MNB and KSH, the latter in respect of the GDP figures used to calculate the ratios). There was a big surplus on the overall balance line, as foreign funds returned to the domestic banking system after the usual temporary end-quarter clean-up period. On the cash and deposits line under other investments, some €5bn net inflow was actually recorded in January. But the...