City analysts divided over chance of rate rise

EU

City analysts remained divided over whether or not the National Bank of Hungary will raise rates from the current 7.50% at a meeting at the end of March.

JP Morgan said in a daily assessment of emerging markets that the NBH would raise rates 25bp in March and another 25bp in the next few months ahead. It said Hungary’s inflation rate would fall from 6.5% in mid-year to 4.8% at year-end. It said that 2009 inflation could be stuck between 3.5% and 4.0%, and a strong forint would be required to bring CPI down to the central bank-government’s 3% mid-term target. Hungary’s twelve-month inflation rate was 6.9% in February, slowing from 7.1% in January.

Goldman Sachs’ London analysts continued to project a combined 150bp rate rise by the NBH at the next three monthly meetings. If the bank wants to come closer to its mid-term inflation target, the forint will have to firm to around 240 to the euro (from its current rate of around 260). If the forint does not strengthen, rates must be raised to meet the target.

Goldman Sachs analysts noted that the elimination of health care co-payments following a referendum on Sunday would take two-tenths of a percentage point off average annual inflation. Ralph Sueppel, of BlueCrest Capital Management, said there is no strong reason to raise rates, as the forint has stabilized, austerity measures are continuing and domestic demand is weak. He said the base rate would remain unchanged and could even fall in the H2 of the year. Dresdner Kleinwort sees the NBH raising rates 50bp at the March meeting. Merrill Lynch puts Hungary’s year-end base rate at 6.75%. (MTI-Econews)

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