Hungary central bank likely to leave rates steady, downgrade growth forecast - Metro US

Hungary central bank likely to leave rates steady, downgrade growth forecast

FILE PHOTO: A view of the entrance to the National Bank of Hungary building in Budapest

BUDAPEST (Reuters) – The National Bank of Hungary is expected to leave interest rates unchanged on Tuesday, according to a poll of analysts, but could set the stage for some easing of policy lowering its outlook for economic growth.

All 16 economists polled between June 15-17 said the NBH would leave its base rate <HUINT=ECI> at 0.9%. The 12 analysts who gave a forecast for the overnight deposit rate <HUODPO=ECI> said it would stay at -0.05% on June 23, when policy makers review the bank’s quarterly inflation report.

The poll sees no change in either the base rate or the overnight deposit rate before the end of next year.

Analysts expect Hungary’s economy to shrink by 5.1% this year after the coronavirus pandemic shut factories and curtailed activity, a far cry from the central bank’s March forecast for a 2% to 3% expansion.

Peter Virovacz, an economist at ING, said a downgrade to the bank’s growth projection could lead to a more dovish tone in its policy statement.

“In the short run, the NBH will react with its unconventional tools, mainly adjusting the rate of the 1-week deposit facility and/or putting a limit on this facility,” he said.

“The mix of a stable HUF and the expected decline in CPI should eventually lead to some reversal of the prior FX stabilising hikes.”

Tuesday’s session will be the first rate-setting meeting of the Monetary Council since the resignation of Deputy Governor Marton Nagy, the architect of many of the bank’s unconventional monetary easing programmes. He will be replaced by Managing Director Barnabas Virag.

“We now think that the NBH is likely to start easing monetary conditions through first limiting the amounts it accepts in the 1W deposit facility,” economists at Morgan Stanley said in a note.

(Reporting by Gergely Szakacs, editing by Larry King)

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