Hungary has more than 50% chance to exit EDP this year, says City
The recently announced additional fiscal measures and better-than-expected GDP data for the first quarter have raised the probability that Hungary will exit the excessive deficit procedure (EDP) this year to above 50%, London-based emerging markets economists said on Friday to MTI. In a research note for clients on Hungary's recent economic developments, Morgan Stanley said that if this happened, the chances of further increases in sectoral or ad hoc taxes later this year would diminish considerably, "which is a relief for investors". Also, some of Hungary's regional peers, most notably Poland, will remain in the EDP for at least another year, which may contribute further to a reassessment of Hungary's relative risk profile. The inflation backdrop also looks more favourable than it has done in years. "On our forecasts, headline (year-on-year) inflation, currently at 1.7%, may move temporarily higher to around 2% over the next three months, but then fall back to around 1.3% by late summer, assuming even more cuts in regulated prices". For 2013 as a whole, Hungary is on track for average CPI at 2.1%. For next year, "we see an increase to 2.7%, but with significant uncertainty due to the regulated price outlook", Morgan Stanley's analysts said. With inflation staying comfortably below 3% for at least another year, "we now see scope for the base rate to fall to as low as 3.50% by September, and stay there for some time", they added, revising Morgan Stanley's previous long-standing call of 4.50% as the terminal rate for the current easing cycle.
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