Hungary Inflation March 2008

Hungary's inflation rate remained at more than twice the central bank's target in March, keeping pressure on policy makers to raise interest rates further. The inflation rate fell to 6.7 percent from 6.9 percent in February, the third consecutive monthly decline, the Budapest- based statistics office said today. The figure compares with a 6.8 percent median estimate of 19 economists in a Bloomberg survey. Consumer prices rose 0.6 percent in a month.



Seasonally adjusted core inflation came to 5.3% year on year, unchanged from Feb, the Central Statistics Office (KSH) has reported on Friday. The month on month rise was up by 0.5% from a 0.4% rise in Feb. The short-based core-inflation figure, closely watched by the central bank, also shows hardly any reduction from February. The quarterly annualised index remained around 6%, at more or less the same level we have seen in the past six months. Taking a slightly more optimistic approach Portfolio Hungary say it is good news that for the first time in a long time the indicator went below 6% (to 5.9%).



Hungarian inflation has thus now exceeded the central bank's 3 percent target since August 2006. Monetary policy makers last month responded by raising interest rates for the first time in 17 months and may now come under pressure to lift borrowing costs again to retain their credibility and to sustain the forint. After all it was only a couple of days ago that Hungarian central bank policy maker Gabor Oblath was saying the bank raised interest rates more than expected last month to signal its commitment to slowing inflation. Perhaps it is going to be pushed to give yet another signal, certainly forward looking yields suggest that they may be.


Meantime Morgan Stanley this morning lowered its rating on Hungarian markets to ‘Equal-weight' from ‘Overweight', citing rising political risks as the reason.

Hungary External Trade January 2008 Update

We now have detailed results for external trade for January confirm the positive impression given by the preliminary results (reported on here).

As anticipated, Hungary's monthly trade deficit continued to reduce in January as exports rose faster than imports. The shortfall was 79.5 million euros ($124.5 million), compared with 170.2 million euros in December and 219.3 million euros in January 2007, according to data released by the Budapest-based statistics office KSH this morning. The figure was revised from a 70.5 million-euro preliminary estimate.

Hungary's trade gap has been narrowing for two years now as export growth picked up and government measures to cut the budget deficit have constrained consumer demand for imported products. Exports in January rose 19.4 percent from a year ago, while imports increased 14.7 percent. In January Hungary sold 77 percent of its exports to European Union countries, while 65 percent of the imports arrived from within the EU.



What we can see clearly from the chart is that exports in January far more vibrant than they were in the doldrum months of October to December (which may give some slight optimism for a slightly better reading on GDP in Q1 2008), and this is consistent with the general picture we have been getting from Germany, and some other CEE countries like Poland, the Czech Republic and Russia that trade in the January to March period may have held up reasonably well. But there are now evident signs that the eurozone and UK economies are starting to slow, and severe inflation issues are now affecting many CEE economies, so the future going into Q2 2008 looks far more uncertain. However looking at the data I can only concur with the Portfolio Hungary conclusion that - if things continue as they are "in a few months Hungary will certainly reach the stage when the trade balance will be in a surplus on an annual basis".

Moody's Dowgrade FHB mortgage covered bonds

This story being run by Portfolio Hungary is definitely not one to miss, since of course the covered bonds market is one of the mechanisms through which the global credit crunch could hit Hungarian financial markets. Beyond simply noting this I do not have the knowledge and expertise to make any additional assessment. But certainly one to watch.

Moody's has downgraded the mortgage covered bonds (Mortgage Bonds) issued by Hungary's Land Credit and Mortgage Bank Co. Plc. (FHB) to Aa3 from Aa2, which has been on review for downgrade since 4 September 2007.

“This rating action was triggered by the downgrade of FHB's long term bank deposit ratings to Baa3 from A2 and its short term bank deposit ratings to Prime-3 from Prime-1 as a result of FHB's privatisation. This rating action concludes the review process," Moody's said in a statement on Tuesday.