Analysts: Hungary’s base rate may drop below 1.5%


London-based emerging markets economists expect the National Bank of Hungary (MNB) to keep cutting the base rate, which is likely to bottom out well below the earlier expected 1.5%, Hungarian news agency MTI reported late yesterday.

In a note on the central bankʼs widely anticipated 15 bp rate cut that brought the base rate to 1.65% the day before, analysts at Bank of America-Merrill Lynchʼs London-based research unit, BofA Merrill Lynch Global Research, said the Monetary Policy Councilʼs statement released after the rates decision was in line with their expectations for more rate cuts ahead, though "given the external uncertainty in June" (in terms of the Greek debt crisis), the central bank may consider reducing the pace of cuts to 10 bp, MTI reported.

"We expect the policy rate to be at 1.35% by year-end, but (we) think that the MNB will likely be cautious with back-to-back rate cuts in the months ahead", analysts said in the note.

In a separate research note released to clients in London, analysts at Goldman Sachs said they expect the MPC to cut rates in June when the next Inflation Report is due and to continue cutting afterwards, but possibly in smaller steps. "In line with our revised rate view, we see the MPC ending the easing cycle with the base rate at 1.25%, some 25 bp lower than indicated by the forwards and the consensus forecast. […] The recent shift to a positive rating outlook by Fitch adds to the easing bias," Goldman Sachsʼs analysts said.

Other London-based emerging markets economists, including those at Capital Economics and Barclays, are more conservative in their forecasts, expecting only one more 15 bp rate cut by the MNB and for the easing cycle to end at 1.50% next month, MTI reported, adding that their predictions are based on the recent easing in Hungaryʼs deflation and a still robust economic recovery.

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