Emerging market analysts in London do not expect the National Bank of Hungary's (MNB) Monetary Council to lower rates at a meeting on Tuesday or until the end of the year, in spite of projections for weaker economic growth as the country's biggest export markets falter.
Analysts for Capital Economics said in a projection on Friday that Hungary's GDP would likely rise about 2% both this year and next, keeping inflation down. But any rate cut could cause the forint to weaken further, making the situation worse for Hungarians with foreign currency-denominated loans, they added.
The forint has weakened 35% to the Swiss franc – the currency in which much of Hungarian banks' retail lending stock is denominated – since July 2008, the analysts noted.
The MNB could cut its key rate by 50bp to 5.5% in Q1 2012, Capital Economics said.
Analysts for Morgan Stanley's investment unit in London put Hungary's GDP growth at 1.6% in 2011 and just 1.4% in 2012. In spite of the sluggish growth and favorable inflationary outlook, the MNB will probably hold off on any rate cuts until they are justified by the country's risk premiums, they said, putting the key rate at 6% in 2012, too.
In a projection on Friday, Barclays Capital said the chance for a rate cut had grown since the beginning of the year because of weaker growth and a faster than expected drop in inflation. But weighing the benefits of a rate cut for growth against the drawbacks of exchange rate risk, rate-setters are likely to keep the base rate on hold.
Barclays Capital said the MNB cold cut rates by 50bp from 6% at present in Q2 2012.