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Markets pricing halt to MNB tightening “too complacent”

The markets are " too complacent” in assuming that Hungary's central bank will keep its rates “broadly on hold from here”, London-based emerging markets analysts said.

In its weekly “CEEMEA Macro Monitor” report, Morgan Stanley said that some market participants are actually calling for rate cuts, due to changes in the MPC.

However, “we continue to see 75bp of rate hikes this year, admittedly with some downside risks now ... an important catalyst to revise our forecast would be an aggressive consolidation package which favors disinflation and is well received by the MNB, but we are not there yet”, Morgan Stanley said.

Most analysts and clients seem to think that the four new “government-appointed” members who will join the MPC will “definitely be of dovish persuasion”. “We are not at all convinced that this is necessarily the case, and would highlight that some of the prospective members actually look fairly solid and balanced in their profiles”.

Also, a strategy of cutting rates irrespective of the inflation environment could result in loss of confidence and a drop in the currency, which would ensure that any rate-cutting cycle is very short lived, Morgan Stanley said.