Hungarian central bank’s monetary policy likely to stay dovish in medium term – Erste Group

In September 2016, the overhaul of the Hungarian monetary framework reached a new milestone as the 3M deposit was capped and would be lowered to HUF 300 billion by end-September. According to an Erste Group research report, the Hungarian central bank is expected to totally eliminate the instrument by the year-end. Moreover, to further lower the effective interest rate in the economy, the MNB uses forint-providing FX swap tenders on an extended time horizon to flood the market with extra liquidity.

The MPC has highlighted several times that unconventional measures could be carried out to loosen monetary conditions, particularly as they do not see serious inflation danger in the economy. The central bank might announce further loosening steps during the September monetary meeting. Despite the ongoing improvement in the economic performance and the likelihood of accelerating CPI, no change in the monetary policy’s current dovish stance is expected. Therefore, the forward-looking real interest rate should continue to be negative and may even sink deeper as time passes, stated Erste Group.

“Our 3M BUBOR rate forecast is 0.05 percent, while the annual CPI inflation rate may average 2.4 percent in 2017. Inflation is expected to reach the 3 percent target next year and may be somewhat higher in the mid run”, added Erste Group.

FxWirePro launches Absolute Return Managed Program. For more details, visit http://www.fxwirepro.com/invest