Hungarian central bank likely to keep policy rate unchanged at 0.9 pct

The Hungarian central bank, MNB, expected to keep its policy rate on hold at 0.9 percent during the MPC meeting today, according to Commerzbank. The central bank is unlikely to provide any hints about future policy change either. According to the MNB’s MPC, the present level of monetary accommodation is sufficient and hence the easing cycle is officially closed.

In its earlier inflation report, the Hungarian central bank had raised its inflation forecast for 2016 by a tad, breaking a long string of downward revisions. However, the central bank is still likely to lower its policy rate again in the winter, mostly during the first half of 2017. The policy rate is likely to reach 0.5 percent by the end of 2017, added Commerzbank.

“Despite expecting some pick-up in EU fund absorption, we anticipate noticeably weaker GDP growth than policymakers are forecasting for H2 2016 – we think that 2016 full-year growth would work out to only 1.5 percent-2.0 percent”, noted Commerzbank.

Similarly, any noticeable acceleration in core inflation is unlikely. These are HUF-negative developments. However, since the rating agency S&P upgraded the nation’s sovereign rating last week, there are downside risks to the EUR/HUF projections, said Commerzbank.