Analysts at JP Morgan said on Monday that their base case is that the MNB will resume base rate cuts in the first quarter of 2016, despite recent messages from the MPC suggesting rates on hold for an extended period.
“We look for the key rate to be cut starting March 2016 to 1% or lower (…) The undershooting of both inflation and growth is clearly pushing the bank in this direction but the Monetary Council is probably not ready to act now given it ended the rate-cutting cycle in July 2015”.
However, for the MNB to signal it may resume base rate cuts “we probably need to see further disappointments in inflation and growth relative to revised forecast and we also need pressure on HUF to strengthen”, they added.
Analysts at BofA Merrill Lynch Global Research, the London-based research unit of Bank of America-Merrill Lynch, said, however, that they expect downward revisions to macro forecasts at the meeting to bring some dovish comments from the MNB, but not significant enough to prompt major action by the Monetary Policy Council. “We calculate that the MNB could cut the average 2016 headline inflation (forecast) by around 0.3pp, from the September forecast of 1.9% , mainly due to Brent dropping by nearly 20% from the previous assumption of US$54/bbl”.
The MNB holds a dovish stance but will likely be cautious in view of the poor sentiment towards emerging markets. “In any case, we do not expect any change in its communication on policy rate, i.e. maintaining the current level of the base rate over the entire forecast horizon”, they added.
Economists at Goldman Sachs said they expect the MNB to keep rates on hold, but indicate a longer on-hold period, extending until at least end-2017.
The new macro forecasts should support a dovish message as they are likely to show a somewhat lower inflation and growth path in 2016 than seen in the September Inflation Report. “But we do not expect the new forecasts to trigger more cuts (…) The MNB now appears more focused on lowering longer-term rates and flattening the yield curve, and less on pushing short-term rates even lower”, they said.
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