London-based emerging market analysts do not exclude the possibility of another extraordinary rate cut by the Hungarian Central Bank (MNB) at a non-rate-setting meeting of its Monetary Council on Monday.
JP Morgan said in a note published at the weekend that the Monetary Council wants to cut back the 300-basis-point (bp) extraordinary rate rise made at the end of October as soon as possible, though rather with small and frequent cuts than a single big reduction, according to the Council's latest statement. The MNB's key rate was already reduced twice in December, once at a non-rate-setting meeting and again at a rate-setting meeting. Currently the rate is 10.00%.
The 300 bp rate rise, to 11.50%, was carried out to make an attack on the forint more costly for speculative investors. Conditions have improved since: the forint has firmed and bond yields have dropped.
JP Morgan sees a “good chance” the Monetary Council will reduce the base rate by 50 bp at its meeting on Monday. If the Monetary Council passes up the chance to make an extraordinary rate cut, it will likely reduce rates a full 100 bp at its rate-setting meeting later in January.
JP Morgan puts the base rate at 7.00%-7.50% by mid-year, saying the Monetary Council probably aims to bring it as low as possible, because of the looming recession, without creating the risk of a weakening of the forint.
Other City analysts see Hungary's base rate falling even faster. Merrill Lynch projects the rate will fall to 5.50% in 2009. Ralph Sueppel of BlueCrest Capital Management says rates could be cut 500 bp – 600 bp within the year. (MTI – Econews)