Hungary's current MNB rates likely to remain at same level till H2 2016

The Hungarian central bank (MNB) cut its key rate by 15 bp to 1.35%. MNB governor Matolcsy said that rates would remain at this level for a long time. 

Growth is not the main concern in Hungary any more. In fact growth has been above 3% y/y during the recent six quarters. Growth expectations for this year and next year also remain fairly solid, especially considering Hungary's high reliance on the slow-growing Euro area.

Inflation has probably been a bigger concern for the MNB than growth as it was running below zero for most of last year. Inflation bottomed at -1.4% in January this year due to the massive drop in oil prices. 

When the HUF started appreciating in March the MNB had little choice but to resume its easing cycle. The two most recent inflation prints have been positive, which seems to have been enough to convince the MNB to end its easing cycle even though the HUF is trading roughly at the same level to the EUR as in March.

"A significant strengthening of the HUF would probably be the most likely trigger for more rate cuts, but it is still believed that the HUF is more likely to weaken than to strengthen for the rest of this year", says Nordea Bank. 

Thus, the MNB governor will be right that the current rate will prevail for a long time and there will be a first hike in the second half of 2016.