MNB seen sticking to base rate, dovish stance for foreseeable future

Analysis

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Hungaryʼs central bank is expected to keep its 0.9% policy rate unchanged and has sufficient scope to maintain its long-standing dovish stance for a prolonged period of time, London-based emerging markets economists said ahead of todayʼs Monetary Council rate-setting meeting, according to a report by state news agency MTI late Monday.

Analysts at Goldman Sachs said that while inflation had risen steadily for several months up to March, year-on-year headline inflation fell by 0.2 percentage points to 2.7% in March and surprised on the downside, and then fell again in April by 0.5 pp to 2.2%, below expectations.

These recent developments reduce the scope for the MNB to raise rates and, given inflation expectations below the midpoint of the 3% +/- 1 pp target range, continued deflation in durable goods and a muted rise in core inflation, there is ample room for the MNB to maintain low rates, the analysts say. 

Considering these factors and the MNBʼs continued dovish bias, "we do not expect any rate hikes in 2017," Goldman Sachs said.

London-based economists at JP Morgan similarly do not expect the MNB Monetary Council to alter its guidance of loose monetary conditions, or the base rate, for an extended period, and believe the easing bias will remain in place "for now."

All in all, they added, "we remain of the view that base rate hikes are unlikely before 2019 and that the scope for monetary tightening over the next 12 months is limited."

The first step toward tightening is likely to be a removal of the easing bias from the Monetary Council statement, possibly in the second half of this year, JP Morganʼs analysts said.

Analysts at TD Securities, a global financial consultancy based in London, said that while they expect the MNB to maintain a bias towards looser monetary policy, they do not expect any further unconventional easing measures.

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