MNB sets base rate at 2.50%; last cut in easing cycle?

Analysis

The Monetary Council of the National Bank of Hungary (MNB) decided to cut the central bank base rate by 10 bp to 2.50% at a meeting on Tuesday, in line with market expectations.

 In advance of today’s announcement, several international emerging-market economists had agreed that a 2.50% rate would be set – and that this month’s cut should be the last for a while, possibly finally signaling the end of an easing cycle which began in August 2012 and has resulted in ever-lower base rates.

Goldman Sachs analysts reckoned that, along with the announcement of a 2.50% base rate, MNB officials would also declare “the end of the easing cycle and [will] use non-rate tools from now on to ease financial conditions and support lending to the corporate sector and demand for government bonds, and to anchor the yield curve and help to insulate it from global risk sentiment.”

Citing recent appreciation for the forint among other improving macroeconomic indicators, economists at JP Morgan were quoted by national news service MTI as explaining that the argument for further base-rate cuts by the MNB beyond 2.50% “is not particularly compelling.” Further, JP Morgan is currently expecting the base rate to remain “on hold” though 2014, “with the first rate hike coming in the second quarter of 2015.”

Morgan Stanley pointed to similar indicators, in a note to investors remarking in part that “The MNB knows that monetary policy is being eased via other channels, and so a wait-and-see period when the base rate is unchanged at 2.50% is still consistent with monetary policy turning more expansionary.”

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