The Hungarian monetary policy’s additional dovish stance has come into the focus among investors to a larger degree, particularly considering that slow monetary tightening process has already begun in the U.S. and the ECB has undertaken first step towards the exit from the asset buying program. Also, Hungary’s regional peers are expected to see rise in rates and yields in the medium term.
On the contrary, the National Bank of Hungary intends to carry out additional easing to send nominal and real, short-term and long-term interest rates and yields to even more depressed levels. Very low level of rates and yields suggest weaker currency as well and therefore, the EUR/HUF pair is expected to stabilize around 315 in the medium term, noted Ertse Group Research in a report.
In the meantime, short-term money market rates are likely to come in the negative territory, while the 10-year bond might fall to 2 percent by the end of 2017 and might remain at this level in FY2018. At present, there is low probability of rates normalizing before 2020.
Even if fundamentals might justify the extra monetary easing, the MNB is expected to embark on such policies. The fact that the Hungarian central bank might carry out additional loosening in the fourth quarter of this year, signifies that the Monetary Policy Council is ready to risk overshooting the inflation target to foster economic growth, stated Erste Group Research.
The central bank might carry out additional monetary easing measures in the months of November and December.
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