• Hungarian Central Bank likely to stand pat

    Source: FxWire Pro - Commentary / 27 Feb 2018 07:45:23   Eastern Standard Time

    The Hungarian central bank is set to meet today for its monetary policy decision. According to a Commerzbank research report, the MNB is expected to unanimously leave the base rate on hold. However, there is likelihood that new unconventional monetary easing measures could be announced, or existing ones might be expanded.

    There are two reasons why this might happen. Firstly, underlying inflation measures, such as MNB’s tax-adjusted core inflation have stopped accelerating, and some are even moderating. In fact, Eurostat’s core HICP measure for Hungary has dropped all the way back to 1 percent. The central bank’s researchers had long claimed that inflation might first moderate in 2018 before gradually rising again in 2019. And secondly, the central bank’s recent yield capping measures have been unsuccessful in curtailing the rise in long-end yields, which had been MNB’s main objective; consisting with global bond yields, Hungarian long bond yields are higher than they were at the start of the year.

    “In order to counter this, MNB could, for example, expand the size of its swap tenders from the current HUF 300bn a quarter, or the size of its mortgage note purchases from the current HUF 500bn. Such potential further easing would mean further upside for EUR-HUF, which we see rising to 317.00 by the end of the year”, added Commerzbank. 

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