Hungary's central bank is likely to continue its tightening cycle at its first Monetary Policy Council meeting this year, due next Monday, in an attempt to mitigate credibility and inflation risks, London-based emerging markets analysts say.
In one of the early forecasts published in the City, Goldman Sachs said that at the next MPC meeting “the balance of probabilities is skewed towards another hike”.
GS said that any increase in external risks, especially continued fiscal woes in the Eurozone, could have “a magnified negative effect” on the forint and on domestic yields. “Under such a scenario, a wider interest rate differential could help to prevent capital outflows”.
Policy credibility considerations and “time limitations” could also prompt another hike, especially now that the MPC has only two meetings left before a changeover in its composition. This change could potentially be carried out under new nomination rules, “giving government-appointed members a majority”. The MPC may want to continue with rate hikes to demonstrate policy consistency and calm the markets, especially ahead of February, when the parliamentary discussion of the new nomination rules is likely to take place, Goldman Sachs said.
In a separate forecast, JP Morgan said “the chances are good” that the MNB will hike again this month, or “in February at the latest”. Although CPI inflation in 4Q/10 was in line with the MNB's latest projection, “we believe the MPC will remain in tightening mode in an effort to anchor inflation expectations closer to its medium term target of 3%”. After a pause, “we expect policy rates to start rising again in the autumn, with a further 50bp likely by early 2012”, JP Morgan said. (MTI - Econews)