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Analysts uncertain about nature of MNBʼs ‘unconventional’ instruments

MNB

Jessica Fejos

Analysts in London yesterday said they believe the National Bank of Hungary (MNB) is “getting ready for something” but it is unclear if the “unconventional” instruments mentioned in its statement mean it will modify its current monetary policy toolkit or introduce new tools.

(Photo: Jessica Fejos)

William Jackson from Capital Economics thinks it is possible that MNB will opt for modifying its toolkit or adopting new solutions or possibly go for a mix of both options as the central bankʼs projections for inflation and economic growth are still too high.

Capital Economics predicts that Hungarian inflation in 2016 could be at 1.5% and economic growth somewhat below 2.5% in contrast to the MNBʼs latest prediction of 1.7% inflation and 2.5% economic growth.

Jackson noted that Capital Economics analysts were surprised the MNB only made small adjustments to its economic forecasts, but added that they do not expect a “dramatic” loosening of monetary policy as conditions are already extremely loose.

Capital Economics expects MNB will keep its base rate at 1.35% even for most of 2017.

Pasquale Diana at Morgan Stanley said downside risk was influencing the MNB. As MNB mentioned long-term yields in its statement, this suggests it wants to flatten the yield curve.

Morgan Stanley predicts only 1.4% inflation for 2016 and Pasquale Diana thinks the central bank could reveal its plans for unconventional instruments as soon as the first quarter of 2016.

Nicolaie Alexandru-Chidesciuc from JP Morgan restated they are still counting on MNB cutting rates from March 2016. The base rate could fall to 1% or lower then stay at that level until the end of 2017. JP Morgan expects Hungarian inflation to be at 1.3% in 2016.

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