Nomura: MNB will keep loosening ‘underlying monetary conditions’


Following the National Bank of Hungary’s (MNB) base rate cut of 15 bp down to 1.35% yesterday, analysts at Nomura believe that “the MNB will continue to loosen underlying, ʼtrueʼ, monetary conditions as much as possible on a permanent basis,” said a press release issued by Nomura yesterday.

Although analysts of Nomura had expected the easing to end at 1.20%, MNB Governor György Matolcsy said yesterday that the easing cycle had ended and that the base rate will be kept unchanged in August and September. However, Nomura said that “we should remember of course that almost exactly a year ago Matolcsy promised an end to the rate cycle and they are now a whole 75 bp lower.”

“It is interesting to note that the MNB is now below Poland. This is something it said even at the end of last year would not be possible because of the need for risk premia,” analysts at Nomura said, adding, however, that “now with stronger growth and FX mortgage conversion done, it has been willing to make the move.”

Nomura believes that “the pre-commitment on keeping rates unchanged is a strong hint at the desire for negative real rates to emerge through next year as CPI inflation bounces back to around 3% through the middle of next year.” Given that Nomura expects future communications to “stress this point more”, they believe that “with the increase in inflation-targeting flexibility now afforded from the stronger CPI inflation ʼbandʼ, as long as CPI inflation remains in this range, the MNB will not hike rates above this level.”

According to Nomura, yesterday’s extraordinary press conference held by the MNB means that “the focus now turns to the September logistical changes: the shift to a 3m depo rate and the increase of the liquidity cover ratio.” Nomura believes that these are the “more important aspects of the MNB’s policy loosening – not the policy rate that the market is emphasizing. These changes mean the 3-month BUBOR can trade flat to the policy rate; T-bills and implied FX can trade much lower still (and of course a flatter bond curve). We think these are factors the market is still underestimating.”

Commenting on the nomination of Márton Nagy who will replace Ádám Balog, Nomura said that it was “in line with its own expectations as Nagy has been the real architect behind so many of Matolcsyʼs postmodern monetary policy steps in the last few years.”

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