In a note titled “Easing On All Fronts,” released to investors in London, economists at Morgan Stanley said rate cuts have slowly filtered through to lending rates, but the volumes of new loans are still modest. However, the recent expansion to the “Funding for Growth” scheme by HUF 2 trillion “could be a far bigger deal” and represents a huge de facto rate cut for small- and medium-sized enterprises and a significant expansion to the National Bank of Hungary (MNB) balance sheet.
Morgan Stanley’s analysis found that while the fiscal costs are significant, the growth impact could be material as well, and risks to next year’s GDP forecast are therefore tilted to the upside. The firm currently expects Hungary’s economy to grow 1.5% in 2014, in line with the broader consensus.
On the central bank’s possible interest rate path going forward, Morgan Stanley now sees the current 3.60% base rate at 3% by year-end, down from their previous forecast of 3.50%, with three more 20bp cuts. A base rate below 3% is “certainly possible” in early 2014, but at this stage this is “a bull case, rather than a base case.”
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