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MNB policy rate likely on hold for two years, says JP Morgan

Analysis

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Hungaryʼs central bank is likely to keep its policy rate unchanged at 0.9% for up to two years, despite an anticipated pickup in inflation, London-based emerging markets economists at JP Morgan said in a note issued today.

Analysts at JP Morgan said in a note released in London that they continue to see the base rate on hold at least until mid-2018 and likely through the end of 2018.  

The government has agreed with trade unions and employers on minimum wage hikes in 2017 and 2018, and this is likely to prompt the MNB to revise its wage growth projections upwards in the December Inflation Report from the 6% year-on-year for 2017 forecast in the September report.  

The agreement should also put upward pressure on inflation in 2018, JP Morganʼs analysts said.  

Despite these measures, however, "we doubt the MNB will raise the base rate before the spring 2018 parliamentary elections and will look to keep the base rate on hold into 2019, tightening monetary conditions, if warranted, through other instruments, including changes to the interest rate corridor and discontinuation of the deposit cap," JP Morgan added. 

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