Nomura: Hungarian government changes financial narrative under pressure

According to Nomura analysts, a realization within the Hungarian government lead to the decision that “there was a need for a greater (populist) reaction to the political pressure Fidesz is under in the education and healthcare sectors as a result of previous wage freezes and a lack of other reforms dogging employees in particular”, the report says. 

Nomura analysts see that the government and the National Bank of Hungary (MNB) have “come to the realization that a more dramatic push is needed to secure growth targets (3.0-3.5% in the medium term) through higher credit growth to SMEs and higher export growth than is currently occurring”. In Nomuraʼs view, a realization between the government and the central bank showed that broad, unorthodox “monetary policy couldn’t simply do all the heavy lifting – as such, fiscal had to come to the party as well.”

The analysts of the Japanese firm believe that this move is the simplest to make it through weaker HUF and short-term curve steepeners, Nomura said in a report issued today. “The credit profile is deteriorating as a result, but, with a lack of external issuance, the upside in that asset class remains limited”, the report says.

“For the past year, the narrative in Hungary has been relatively simple, maybe even boring: a central bank that wanted to minimize rates to maximize growth, that was maximizing profit to remit to the government over time, that wanted lower foreigner participation in HGBs and a flatter curve, a fiscal policy that was tight given monetary expansion and to ensure a ratings increase,” the report says adding, not a whole lot is going on apart from this.