Hungary's central bank is set to hold its fire for the time being, London-based emerging markets analysts said after the MNB, in line with the expectations, left its base rate at 5.25% on Monday.
For the longer term, however, analysts in the City gave conflicting views about the possibility of further easing. Timothy Ash, head of global emerging markets research at Royal Bank of Scotland told Econews in London that “if we see global markets stabilize, (and) the forint stabilize if not strengthen ... then we'll have an easing bias and scope for modest rate cuts from where we are already”.
Analysts at JP Morgan, however, said that over the past two months, the room for further monetary easing “has narrowed significantly”, with the forint weakness, beside the deterioration of Hungarian CDS and bond yields, being the key factor. “The high sensitivity” of the MNB's interest rate policy to currency moves is not only about implications for inflation but even more importantly for financial stability.
While the share of FX loans of total loans has been slowly declining since late-2008, the level of 63% still makes the Hungarian economy vulnerable, JP Morgan said. (MTI – Econews)