Analysts: Easing Greece worries allow more MNB rate cuts


Renewed market optimism over the recent deal between Greece and its eurozone creditors will likely allow Hungaryʼs central bank to press on with its easing cycle, but recent market volatility should warrant caution, London-based emerging markets economists said ahead of todayʼs monetary policy meeting. 

Analysts at JP Morgan said they expect the MNB to deliver a fifth consecutive 15 bp rate cut, to 1.35%, today, on the back of renewed forint appreciation and the improved market sentiment over Greece.

They said they also expect the MNB to deliver a final 10-15 bp rate cut in August and do not see the central bank hiking its policy rate before 2017. "We think the MNB still favors a somewhat weaker forint than current levels and will remain comfortable cutting rates as long as EUR/HUF remains below 320-325", JP Morganʼs analysts added. London-based economists at Goldman Sachs said they think a 10 bp cut is most likely today, but "there is also some chance the MPC may opt for a slightly larger cut of 15 bp. ... We expect the MPC to reiterate its cautiously dovish message after the meeting and flag the possibility of more easing ... we expect the MPC to cut the base rate to 1.25% this summer."

Economists at Barclays said they think the MNB will make one final 10 bp cut to 1.4% and then call a halt to the easing cycle. With inflation stabilizing and growth on a solid footing, the central bank clearly has grounds to stop cutting. However, "we acknowledge that a further 10 bp cut in August is also possible" as the recent reversal of HUF weakness increases the likelihood of another rate cut next month. Emerging markets analysts at Royal Bank of Scotland said that with the reduction in immediate Greek risks, the room for policy easing is once again open for the MNB

Nevertheless, the recent market volatility suggests that the MNB may need to take a more cautious approach, "hence we expect a more moderate 10 bp cut, as opposed to the 15 bp cut delivered last month". The end of the easing cycle is nearing, but persistent forint strength may allow the MNB to gradually cut rates to the 1.20-1.30% range from 1.50% currently, RBSʼs analysts said

Analysts at Capital Economics also said they had pencilled in a 10 bp cut for Tuesday. Further ahead, "we wouldnʼt rule out another cut or two beyond this (...) But the big picture is that interest rates will stay low for a prolonged period", they added.

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