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BofAML: Dovish MNB signals herald new rate cuts

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Dovish signals from Hungaryʼs central bank are heralding a new rate cutting cycle, London-based emerging markets economists said yesterday, according to Hungarian news agency MTI.

In a report highlighting key findings during a recent visit to Hungary, analysts at BofA Merrill Lynch Global Research, the London-based research unit of Bank of America-Merrill Lynch, said these signals led them to pencil in a further 35bp in benchmark rate cuts this year to 1%. 

“We think the MNB is sensitive to a stronger HUF amid appreciation pressures from upcoming ECB QE, and on top of Hungaryʼs robust balance of payments positions ... Our Budapest visit suggests that timing of the rate cuts depends highly on the market reaction following the March 10 ECB meeting,” MTI cited analysts. 

“Benchmark rate cuts could resume in the second quarter, in our view, in small steps of 10-15 bps, totaling 35 bps this year”.

However, a move in as early as March is unlikely unless a stronger than expected easing package by the ECB leads to EUR/HUF quickly trading well below 310, Bank of America-Merrill Lynchʼs economists said.

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