Hungarian central bank likely to keep monetary policy on hold, may begin fresh cuts next year

The Hungarian central bank is due to hold its MPC meeting today, where it is likely to keep its monetary policy on hold, said Commerzbank in a research note. It would be interesting to see how seriously the Committee would take the acceleration of underlying inflation recorded in October. There seems to have been no real turning point for inflation that can be witnessed from the seasonally-adjusted rise in price levels.

However, as central banks believed that inflation would move towards their target sooner or later, every such situation gives the potential for monetary policy to become more hawkish and therefore it would be interesting to see the MPC’s remarks later today, according to Commerzbank.

But, in recent months, the real economy data has been weakening and GDP forecasts by consensus has been declining. In October too, the composite economic confidence dropped by an additional 0.9 points to its lowest since 2013, with the consumer confidence index dropping by 1.8 points.

Furthermore, the Hungarian central bank has been experimenting with new forms of quantitative easing and liquidity boosting measures for banks and has recently lengthened its cheap lending scheme by six months. All of this signifies that the central bank is leaning towards the dovish side, stated Commerzbank. The main question that arises is whether the MNB would look to further lower interest rates as the economic growth slows down.

“We ourselves forecast fresh rate cuts next year, with the 3-month deposit rate falling from 0.9 percent to 0.5 percent - today's meeting will shed light on whether or not our forecast is still realistic”, added Commerzbank.