Nomura tags today’s MNB meeting ‘more important than usual’


Image by Jessica Fejos

Although analysts at Japanʼs Nomura, in line with the market consensus, do not expect rate setters of the National Bank of Hungary (MNB) to change the base rate at the Monetary Council meeting today, they still deem it "more important than usual," as possible capping on 3M depo access could hint at future BUBOR intervention, Nomura said in a report issued yesterday.

Since the change of leadership at the Hungarian central bank in 2013, the MNB has been committed to easing continually through every means possible, Nomura analysts recall. At the same time, Nomura notes that this year has been relatively slow after 45 basis points of cuts in the first half of the year "as the MNB has got to grips with shifting the interbank liquidity system to get banks to undertake more of the heavy lifting of growth and provide the MNB with the ability to fine-tune liquidity more into lending, supporting growth and lowering government funding costs."

"We think the MNB is broadly happy at the current base rate and negative real interest rates that will be produced from December with the rise in CPI inflation to come from the next print as base effects kick in," says the Nomura report. "However, there is a risk, with a poor composition of growth (private sector investment outside of structural fund-supported activities remaining minimal) and some downward surprises to the CPI, that the MNB may want to start hinting at this meeting that more ʼbluntʼ easing could come. This will help lower BUBOR as well," the report adds.

Based on these expectations and on "a few verbal comments during a scheduled press conference or at any impromptu media encounter from the Deputy Governor," analysts at Nomura see the euro-forint exchange rate set to steer higher, as they suggest the central bank is "unhappy with EUR/HUF currently at around 308, but its focus is lower than at other times during the year because of the low volume of structural funds going through reserves."

Nomura analysts say that FX mortgage swap roll-offs scheduled for December and external debt redemptions expected in mid-2017 could "put the MNBʼs P&L focus back to the fore and it will likely be a more aggressive move to shift EUR/HUF higher in our view," adding that it may start to lay the groundwork for this now.

Still, Nomura analysts see the main focus staying on liquidity, with the foundations of the new MNB liquidity laid out.

"The core of this will be a cap on access to the 3M depo facility, which currently has HUF 1.6 trillion in it. We expect this cap (fully in force as of December) will be at or around HUF 1 tln. A lower number announced would suggest more aggression, a higher number more caution," the report explained. "We think liquidity will naturally fall to around HUF 1.4-1.5 tln in December as FX swaps roll off, which is probably a better comparison for where the cap is set rather than the current level," according to Nomura.

Nomuraʼs expectations are in line with the market consensus in that, despite the central bank being almost unanimously expected to leave its key rate intact, the meeting will be closely observed as the central bank is expected to announce operational details of 3M depo limits.

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