After initial falls on regional anxiety in view of the final results of elections in Poland on Sunday which point to a possible shift to Hungary-like unorthodox policies, the Hungarian currency spent the day swinging close around the unchanged level versus the euro that rose against the dollar. Both were underpinned by certainty that the US Fed would not move its base rate this time round, and might even give a hint at some postponement in its guidance due Wednesday evening. This helped the forint, too, versus the dollar.

The forintʼs upside, however, is capped by recurrent expectations that the National Bank of Hungary might restart easing soon, and begin to experiment with negative real rates for an extended period of time.

Hungaryʼs central bank is likely to resume its monetary easing cycle (ended in July) either already in December or early next year and may cut its policy rate to 1.00% or even lower (from the present record-low of 1.35%) on the back of persistently below-target inflation and the increasing likelihood of the European Central Bank (ECB) significantly extending its quantitative easing cycle, JP Morgan said in a revised forecast on Wednesday.

JP Morgan now expects a 10 bps cut in the ECB deposit rate (at minus 0.20% since September, 2014), a €10 bln increase in the monthly pace of asset purchases (started in March) from €60 bln to €70 bln, and a three-month extension to the program through December 2016.

“We think the MNB is quite likely to resume cutting the policy rate in early 2016 (…) The earliest this could happen is at the December (MPC) meeting when the new inflation report is presented, but we think that the Council will prefer to wait one-two months to see the impact from additional ECB QE”, JP Morgan said.

This followed a news portal interview with the deputy governor of the National Bank of Hungary (MNB) on Tuesday, who said the central bank might keep its base rate at the present 1.35% until 2018 or even 2019, way beyond its end-2017 monetary policy horizon, and even if inflation accelerates to its target this side of the policy horizon. The deputy governor emphasized that negative real interest rates could thus well become part of the bankʼs toolkit to help close the negative output gap.

Negative yields on government debt became common in the last few years up to tenors of five years or more in several first-rated countries, including Germany, Switzerland, even France or Belgium, as a result of central bank easing. While this kind of discouragement has so far failed to stimulate growth in developed economies, such experimentation in junk-rated Hungary might simply frighten away investors from government financing and business investment alike, thus making debt financing more expensive instead of making it cheaper, without driving investments into the real economy, though both of which are the advertised aim of the MNB, analysts say.

Latest surveys show that foreign investment funds have already been increasingly withdrawing from Hungarian government bonds this year, at least partly as a response to the NBH squeeze-out policy which shepherds domestic banksʼ funds into sovereign debt, and resulted in yields falling too much.

The forint traded at 281.39 to the dollar, up from final quotes at 282.29 on Tuesday. On Wednesday, it moved between 281.14 and 282.64, after an almost one-month low at 283.81 last Friday.

It was quoted at 285.88 to the Swiss franc, slightly up from 286.28 late Tuesday. Its range on Wednesday was 285.77 to 287.29, after a nearly two-month low at 290.35 and a five day high at 285.16 both last Friday intraday. Since its crash to an all-time low at 378.49 to the franc on January 15 when the Swiss central bank scrapped its cap of 1.20 to the euro, it reached the highest at 281.07 on February 26.