Market reaction to MNB decision ʼoverdoneʼ , Nomura says


Market reaction to the National Bank of Hungary’s (MNB) decision to keep rates unchanged, as expected, and reduce the 3m depo cap target for end-Q1 to HUF 750 billion “is a little overdone” in seeing this “as a bearish move with an eye on the inflation tail risks”, according to an analysis sent to the Budapest Business Journal by London-based analysts of Japan’s Nomura.

According to Nomura’s analysts, the cutting of the depo target by MNB again signals the central bank’s intentions for a further loosening of monetary conditions and a further fall in BUBOR. “We see little difference between HUF 750 bln and HUF 700 bln market consensus, and do not think too much should be read into this as some kind of ‘bearish surprise’. Indeed, through its Monday FX liquidity provisions the MNB can provide far more extra liquidity than this for the market over a week, let alone a quarter,” the Nomura analysis says.

“We think the MNB is happier to massage or fine-tune BUBOR through liquidity changes. If anything, this should be viewed as a sign of confidence rather than revealing something about the MNB’s views on the macroeconomic outlook. This is especially true when we consider that the MNB did not roll recent maturing FX loan conversion swaps with banks – again with a view to managing liquidity,” the analysis adds.

Although Nomura believes the market has questioned the MNB’s aforementioned move as a signal of shifting away from wanting a weaker forint, they believe there is no particular signal about a shift in the MNB’s FX stance. “In other words its focus on weakening the currency is sporadic and led by P&L considerations. With FX swaps rolling off this month at recent highs in EUR/HUF we think the MPC saw no particular need for an FX focus at this week’s meeting,” Nomura said.

The analysts are interested to see how the MNB will handle things moving forward. “If we are around rock bottom on the amount of liquidity that can be outside the MNB (to still maintain an interest rate channel at all), then we think policy will shift to move liquidity out the curve […]. We also see more direct and “directed” lending into the economy as a possible next stage. Timing of this is uncertain because of the expected structural fund boom next year. However, we think the MNB will keep an eye on the underlying ‘true’ level of private sector and especially SME productive investment to achieve its ultimate aim, which is to raise potential growth into the 3-3.5% range,” the analysis concludes.


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