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Analysts expect MNB to keep policy rate unchanged today, see tightening later

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The Monetary Council of the National Bank of Hungary (MNB) is all but certain to keep its 0.9% policy rate unchanged, but underlying price pressures are likely to shift its bias towards tightening later this year or in 2018, London-based emerging markets analysts said ahead of the councilʼs rate-setting meeting today.

Economists at Capital Economics, a London-based global financial consultancy, said the fact that year-on-year headline inflation eased to 2.7% in March from 2.9% in February will provide the council with room to keep monetary policy extremely loose "for now." Nonetheless, they added, "we expect core price pressures to build over the second half of this year," which may prompt a shift towards tightening in the second half of 2017 that would, initially, take the form of an unwinding of the MNBʼs unconventional policy measures, pushing interbank rates up to the benchmark rate. 

Following that, Capital Economics added, "we expect the policy rate to be raised to around 1.75% by the end of next year."

Economists at TD Securities, meanwhile, said they do not expect the MNB to ease policy further, but they also see the bias remaining for easing, "albeit without touching the policy rate."

That said, they added, "we think we are near the end of the easing cycle and indeed expect the MNB to start reversing some of its unconventional easing measures towards the end of this year as inflation moves higher on a sustained basis."

London-based economists at JP Morgan said they expect no major changes in the MNBʼs stance at todayʼs policy meeting.

"We expect the [councilʼs] statement will continue to signal a preference to maintain an accommodative policy for an extended period, likely placing more emphasis on inflationʼs deceleration, while downplaying fast wage growth," JP Morganʼs analysts said, adding that "we see scope for the MNB to tighten policy before the second quarter of 2018, via fine-tuning of unconventional instruments, while base rate hikes look unlikely before 2019."

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