Economists: MNB has scope for two more 20bp cuts


Hungary's risk environment and CPI trends appear to allow the central bank to carry out two more 20bp interest rate cuts this year, London-based emerging markets analysts said after the Monetary Policy Council had announced a widely expected 20bp easing on Tuesday, bringing its policy rate to a new all-time low of 3.40%.

William Jackson, a senior emerging markets economist at UK-based Capital Economics, said after the rate decision that there are “a whole host of reasons to think” that the easing cycle is nearing an end. The economy is recovering and core inflation is rising. What’s more, “it’s not clear that rates can be lowered much further without causing the forint to weaken, particularly in the context of the growing risk of a flare-up in tensions between the government and local banks.”

Economists at London-based financial consultancy 4cast opined after the Council’s rate decision that the post-meeting communique remained dovish, “although not more dovish than it had been a month earlier.”

Overall, the series of 20bp cuts a month is likely to continue: “We think that [the Monetary Policy Council] will get as low as 3.00% if there is no marked change on external markets ... A persistent improvement in risk appetite and a further delay in the tapering expectations (related to the Federal Reserve’s quantitative easing cycle) may push the MPC towards cutting more,” 4cast analysts said.

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