Hungary’s central bank is likely to remain biased to tighten until the IMF/EU deal is reached, but its policy rate is now close to peaking, London-based emerging markets economists said.
In its new weekly emerging markets report, JP Morgan said that the near-term rate outlook remains highly dependent on progress with IMF/EU talks and global risk appetite. If EUR/HUF remains below 300 on a sustained basis, the MNB "probably would not feel compelled to raise rates further from here".
"Renewed uncertainty" over the Prime Minister’s willingness to agree to the full set of conditionality imposed by the IMF and the EU could still prompt the MNB to hike another 50bps in coming months. Assuming a stand-by arrangement is concluded in the second quarter, however, "we remain of the view that the MNB could start to reverse its rate hikes in late 2Q or early 3Q, taking the policy rate back to 6.00% by end-2012", JP Morgan’s London-based analysts said.
In a separate report released to investors in London, Morgan Stanley said that what MNB governor Andras Simor described as a "close" decision after the M% surprised the markets last week by holding on to its 7.00% policy rate "in our mind is only consistent with a 4-3 split". "If Simor was outvoted ... it is quite possible that the M% may be less conservative when deciding whether to cut rates than Simor’s comments would suggest".
It is clear that the inflation picture on its own does not warrant a hawkish stance, and the risk pillar is more important at this juncture. "We think that negotiations with the IMF can start officially over the next few
weeks, and we think that the odds of a package being reached by end-1Q or early 2Q are good", Morgan Stanley’s analysts said.
"Our current forecast sees rates at 7.50% by the end of 1Q, and then falling later in the year as the IMF/EU assistance line creates a buffer that allows the MNB more breathing space, (with) rates at 6.25% by year-end ... The risks (to this forecast) are now that we have seen the peak in interest rates already".