There is only “a small chance” Hungary’s National Bank (MNB) will react to any slowdown in growth with a rate cut due to external risks, London-based emerging markets analysts said on Thursday.
Commenting on the minutes of last month’s Monetary Council meeting, published the previous day, Barclays Capital said the MNB “still seems quite confident” that Hungary’s export performance will remain robust enough to keep growth above potential this year and next.
However, given the global slowdown, including that in Germany, its most important export market, “we wonder whether in future meetings there could not be more discussion about the potential risks related to a sharper external demand decline … Few economies in EEMEA remain as dependent on exports as Hungary”.
The minutes also reiterate the view, however, that although domestic developments themselves could allow for a cut, external risks did not. “It is difficult to imagine a scenario in which economic activity would weaken, but external risk would improve … In other words: in a world where Hungary’s exports slow significantly due to weaker external demand, would HUF really hold up and risk premiums on HUF assets remain unchanged? If not, the MNB would probably be happy if it could hold rates unchanged rather than embarking on risky rate cuts”, Barclays Capital said.
In summary, the Monetary Council minutes “leave us comfortable with our baseline that rates will remain unchanged for the remainder of 2011, with the forint trading in a 260-270 band against the euro … We see the first potential rate cuts in Q2 12”, it added.
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