The continuing global flight from emerging market assets into the safe havens of the Bund and US treasuries knocked the Hungarian currency into multi-year troughs, while analysts views differ on its outlook.
Hungary’s deflation risk, its economic linkage to Russia and possible sovereign quantitative easing from the ECB increase the risk of more dovish policy from the Hungarian central bank next year, Morgan Stanley said in a note on Wednesday. Therefore, it expects Hungarian government bonds to outperform in the first quarter of next year.
Hungary’s central bank sought to strike a balanced and cautious tone in its rate statement Tuesday but still opened up “significant room” for rate cuts in the coming quarter, Nomura also said. It sees rate hikes only in the second half of next year if inflation bounces back.
Commerzbank expects Hungary to cut its main policy rate to 1.7% next year from the present 2.1% once banks convert households’ foreign-currency mortgages into forint debts, since, according to Commerzbank, economic growth is forecast to decelerate to 2.2% in 2015 and underlying inflation will soften.
But others reckon more turmoil in Russia may make the region’s central banks too cautious to cut interest rates.
The forint’s volatility may increase in the short term due to external factors such as the Russian rouble’s woes, however, forint depreciation risks may be limited over the medium term as Hungary’s demand for foreign-exchange will plummet after banks convert households’ foreign-currency mortgages into forint debts next year, and as Hungary’s current
account surplus may benefit from lower oil prices, a Citi economist said on Wednesday. Therefore, Citi believes the
Hungarian central bank may keep interest rates on hold until early 2016.
The forint traded at 252.43 to the dollar, down from 249.91 late Tuesday. On Wednesday, it moved between 249.48 and 253.28, a more than twelve-year low. It was quoted at 260.91 to the Swiss franc, down from 259.13 late Tuesday. Its range on Wednesday was 259.40 to 262.68, a near 2.5-year low.
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