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MNB rate cut was forseen

Analysts say the base rate will probably reach 1.5% and note a positive impact on the real estate market.

The 15 basis point cut in the base lending rate, down to 1.80%, announced by the National Bank of Hungary (MNB) on April 21, was in line with the expectations of analysts, who say they predict the cuts to continue for a while.

Sándor Jobbágy, senior analyst at CIB Bank in Hungary, told the Budapest Business Journal that he expects the MNB’s easing cycle to be continued without any shocks to the market. He added that his firm expects the central bank to keep cutting the base rate by 15 bp in the future, and that CIB would not find 10-20 bp cuts surprising either. According to CIB, we can expect the current easing to stop at around 1.50%.

Parallel to the base rate cut, financial interest rates are going down as well, followed by the price of debts, Zoltán Török, head of research at Raiffeisen Bank Hungary, told the BBJ.

Török expects the base rate cut, on the one hand, to make the residential real estate market pick up due to cheaper debts, especially mortgages, and, on the other hand, predicts household expenditure will increase as well. “We expect the MNB’s easing to continue until it reaches a base rate of 1.5%”

External factors

Although it too expects the rate cutting cycle to continue, Equilor Investment Ltd. noted that external factors could affect MNB’s easing policy – especially the easing cycle of the European Central Bank and the stabilization of Hungarian prices, which are still declining, but not as quickly as before.

Equilor predicts average inflation for the year to come in around 0%. The consumer price index should leave negative numbers and start rising by autumn, then continue rising until it reaches 2% by the middle of 2016, according to Equilor.

Equilor cautioned that there is one more external factor to watch: the U.S. Federal Reserve’s planned tightening and interest rate hike, which is currently hard to predict. Equilor noted that more than two thirds of Hungarian bonds and stocks are owned by foreign investors who would react sensitively to an early summer interest rate increase.