Analysts expect Greeceʼs worries to affect MNB’s easing


Worries over Greeceʼs escalating debt crisis may slow, shorten or halt the monetary easing cycle of Hungaryʼs central bank, London-based emerging markets economists said ahead of the Monetary Policy Councilʼs (MPC) meeting due today.

Analysts at Royal Bank of Scotland (RBS) said that there is a "high degree of uncertainty" surrounding the rate setting meeting, especially given the heightened risks associated with Greece.

"We assign (some) 80% probability of a cut of 10 bp or 15 bp (for today) and we see only a 60% probability that the easing cycle extends beyond June", they added.

"Although we are quite convinced that the MPC will cut rates at this meeting, there is more uncertainty as to the size of the cut and, more importantly, as to the continuation of the easing cycle in the coming months (...) the rhetoric of the MPC will be extremely important to watch to assess the near term rate outlook", RBSʼs London-based analysts said.

Economists at JP Morgan said they expect the MPC statement to leave the door open to further easing to below 1.5%, but this could be presented as an a alternative scenario rather than the MNBʼs baseline view.

"In other words, additional rate cuts, to 1.2%-1.3% by September, could be conditional on downside risks to the baseline view materialising in coming months".

The recent rise in bond yields and widening in Hungarian CDS spreads warrants some caution and could prompt the MPC to pause in July or, at the very least, slow the pace of easing to 10 bp, JP Morganʼs analysts said.

London-based economists at Goldman Sachs said they expect the MPC to cut rates by another 15 bp today, but given that the MPC will also know the latest revisions to the macro forecasts, and after an upside inflation surprise in May, "we also think that a smaller, 10 bp cut is possible". "We also think the MPC will continue to cut policy rates afterwards, reducing the base rate to 1.25%, but the recent changes in (monetary) instruments create some upside risk to this call", they added.


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