Hungarian central bank likely to lower benchmark rate in 2017 to 0.5 pct

In 2016, the Hungarian central bank has lowered its key interest rate to 0.9 percent and has hinted that the cycle of easing has ended for now. The Monetary Policy Committee continues to keep flexible wording regarding this guidance. Even if additional rate cuts are unlikely this year, it is expected to lower next year, said Commerzbank in a research report. The central bank would possibly lower its benchmark rate to 0.5 percent in 2017.

This is based on persistent low inflation around euro area which is expected to make ECB lower rates further too, added Commerzbank. The Hungarian central bank is likely to strengthen its QE program via several schemes such as the recently introduced initiative to cap the deposits amount that banks can place at its three-month deposit facility.

The MNB’s wait-and-watch stance is expected to further stabilize forint in the following quarters; however, there might be small upward pressure from Brexit related developments.  Subdued growth and persistent low inflation is likely to renew rate cut expectations by the end of 2016. This is expected to exert upward pressure on EUR/HUF, particularly if the US Fed is seen hiking rates in December 2016, according to Commerzbank.