Low inflation may delay MNB rate hikes to 2016

MNB

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Hungary's very tame CPI dynamics may prompt the central bank to delay its monetary tightening to 2016, London-based emerging markets economists said on Friday, according to Hungarian news agency MTI.

In its EEMEA Economic Weekly report released to investors in London, BofA Merrill Lynch Global Research said another round of rate cuts by the National Bank of Hungary (MNB) remains unlikely as domestic demand is already benefiting from significant fiscal and monetary stimulus, which is allowing the economy to grow well above its potential growth rate. “We estimate [Hungary's potential GDP growth] around 1.5%, while expected 2015 GDP growth is 3% for a second year after an anticipated similar pace this year.”

That said, another sizeable drop in inflation would allow the MNB to delay further the timing of the rate hikes to 2016, “instead of the 90bp we anticipate at the end of 2015", analysts at Bank of America-Merrill Lynch's London-based research unit said. The drop in world crude prices seen in September may eventually lead to a drop of 0.4-0.8pp in inflation over the coming 12 months in the CEE region if it is sustained and exchange rates do not weaken further. Also, the recent readings of inflation confirm a still sizeable downward effect of food prices across these countries and very subdued demand-led price pressures, they added.

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