The government's commitment to a fiscal deficit target not exceeding 3% of GDP next year helped to remove rate hikes from the agenda, London-based emerging markets analysts said after the MNB left its policy rate at 5.25% on Monday, in line with expectations.
In a reference to two MPC members voting for a 25bps hike at the previous meeting last month, JP Morgan said that the government's announcements about the 2011 fiscal deficit target "prompted the two rate hike supporters to change their view".
JP Morgan said it remains "comfortable" with its view of no change in NBH policy rates this year. The positive turn in the government's fiscal stance, coupled with a more favourable global backdrop for risk markets is helping the forint stabilize at a level which is "more comfortable for the NBH, both from perspective of inflation and financial stability".
Yet, for rate cuts to come back onto the agenda, EUR/HUF would need to move decidedly lower, for example to 265, and growth "would need to continue to disappoint in coming quarters". "Our base case is for the NBH to remain in wait and see mode through the first half of 2011, followed by gradual rate hikes in 2H11", JP Morgan said.
TD Securities said after the Monday rates decision that the government's re-commitment to a budget deficit below 3pc of GDP in 2011 has improved forint risk appetite, leading to a forint rally against the euro.
With significant EUR/HUF and CHF/HUF retracements "we think the hiking instances have been deferred for now ... should the forint keep its gains against the single currency and politics demonstrate a real commitment to fiscal consolidation, we would not rule out a final 25bp to 50bp easing some time at the end of 2010". For now, however, "our baseline scenario remains for interest rates unchanged over the forecast horizon", TD Securities said. (MTI-Econews)