Analysts: MNB base rate likely to go below 3%
Hungary’s central bank is likely to slash its policy rate well below 3% amid increasing risks of deflation, London-based emerging markets economists said on Thursday.
In a report highlighting key findings of a recent trip to Hungary, released to investors in London, analysts at Royal Bank of Scotland (RBS) said that even “the central bank has been taken by surprise” with the latest inflation prints and “will feel warranted in cutting rates below the 3% mark”.
With another 11% of utility price cuts in November, “we foresee 1% being shaved from headline inflation, leaving Hungary at risk of deflation [...] We now expect another 100 bp of rate cuts [by the MNB] over the next five meetings in 20 bp increments, down to 2.4%.”
“One of our key takeaways from the meetings in Hungary was that the terminal policy rate range of 3% to 3.5% given by [MNB governor György] Matolcsy back in the summer no longer carries much weight given the inflation undershoot ... The range was referred to [during the talks in Budapest] as a flexible band which can fairly easily be breached,” RBS analysts reported.
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