Inflation prints in January (0.3% mom, 15.1% yoy) came in much below expectations as tariffs for electricity unexpectedly plunged by 15.8% mom. We are revising downward our end-year inflation forecast to 7% yoy from 7.5% yoy. We rate the comments of the NBR Governor on today as dovish.
Real GDP advance remained strong in Q4 2022 (1.1% qoq; 4.6% yoy), beating our expectations. Increase of domestic demand likely continued to be the key driver of economic growth in Q4. Strong economic resilience of the economy suggests upside risks to our GDP growth forecast of 2.3% in 2023.
Last year, current account deficit unexpectedly jumped to 10.4% of GDP in July-October, but decreased to 8.4% of GDP in November-December. This favorable trend might continue this year when we foresee the current account deficit at 8% of GDP (risks on the upside).
NBR kept the key rate unchanged at 7% today, as expected. NBR’s updated inflation forecast assumes a rapid decrease of annual inflation rate in 2023, but keeps it above the target band by end-2024. We expect NBR to preserve the monetary policy rate at 7% until Q2 2024.
This week marked the start of the extended G7 price cap on Russian energy products. Measures against Russian crude oil have already been in place for weeks causing a widening price gap to global markets. The resulting depreciation of the Russian rouble was however limited by renewed FX interventions (selling Chinese yuan). On global markets we look back at an eventful week with markets in search for direction. EUR/USD in particular had been caught up between central banks and economic data releases. In the end, the stronger than expected US labour market set the tone, pushing the US dollar stronger and putting an end to the euro's rebound, at least for now. Therefore, it was time to take a look at our forecasts, which we have fined-tuned for the US dollar, the Swiss franc and the Hungarian forint. The latter still benefits from the protective interest rate levels even defying S&P's recent downgrade of Hungary to BBB-.
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