Analysts: MNB base rate cuts may be done

In Hungary

One day after announcement of the National Bank of Hungary (MNB) base rate to yet another record low of 2.60%, analysis compiled by Bloomberg suggests that the central bank may be finished with the easing cycle: Expect at most one more cut to 2.50% with national elections looming, say the experts, but a rise in the base rate probably won’t be happening in the short-term, either.

The Bloomberg report notes that in 2014, forint-based securities have dumped 3.8% in value, ranking the country just 30th of 32 nations listed in the news service’s Emerging Market Local Sovereign Index; meanwhile, the 4.7% loss in the forint’s value itself is larger than all but three of 24 emerging-market currencies tracked by Bloomberg. Commented Aegon NV manager Zoltán Szűcs: “The forint is becoming increasingly less worth holding and, in case of potential emerging-market turbulence, may deeply underperform.”

On that note, an MNB statement of earlier this week again reassured that “Hungary’s fundamentals make it more resistant to external shocks than emerging peers…”

And until the election, Standard Bank Group Ltd. strategist Demetrios Efstathiou advises that “policy makers will try to keep financing costs low to show that Fidesz is the party that brought low inflation, and low interest rates.” Efstathiou was further quoted by Bloomberg as declaring rate cutting by the MNB Monetary Council “as good as done” and that no rate hikes would come “any time soon.”

Raiffeisen Bank International AG currency trader Gábor Korompay assured Bloomberg that the government will seek to avoid a “substantial” forint for the time being: “Of course they can’t do much if Russia invades Ukraine and emerging markets slide, but they can control forint-specific risks, at least until the vote. The central bank also doesn’t want to forint to plummet.”

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