The Hungarian central bank cut its policy rate for the ninth consecutive meeting in line with expectations. The risks remain tilted towards further cuts, but it all depends on the HUF and inflation developments.
No surprises here – Hungary cut its base rate for the eighth consecutive time by 25bp, bringing it down to a record-low 5.00%. Further interest rate cuts are possible, but they depend on inflation pressure and financial market uncertainty. No signs of unconventional monetary policy measures, which should help to firm HUF.
The parliament expectedly nominated economy minister Matolcsy as central bank chief. The appointment increases the likelihood of unconventional monetary policy measures, although these are unlikely in the short term. With all the negative sentiment surrounding Hungary, don't forget the possibility of a positive surprise from a recovering Germany!
No surprises here – Hungary cut its base rate for the seventh consecutive time by 25bp, bringing it down to 5.25%. The monetary policy stance is likely to remain loose in the coming months as well, especially as the current central bank governor steps down after this meeting. On top of rate cuts, unconventional monetary policy easing would not be a suprise.
One of the main events in Hungary this spring is the stepping down of current central bank chief Simor in early March. The next central bank chief will be someone who plays well with PM Orbán. The main risk is that the central bank will be ready to give up some of the focus on the inflation target in favour of boosting growth, thus undermining long-term credibility of the central bank.
It has become increasingly clear that there will be no new arrangement between Hungary and the IMF/EU. The encouraging market sentiment is helping Hungary meet its external financing needs without IMF support. However, an IMF package can be much more valuable than the cash itself through the discipline and accountability it introduces to economic policies.
Dismal. The only word that properly describes Hungary’s GDP data today. Today’s weak GDP data and lower than expected inflation cements expectations of further rate cuts. Risks are certainly mounting for further easing beyond 5.25%.
The Hungarian central bank cut its key rate by 25bp to 5.50%. We are pencilling in one more rate cut over the near term, but the weakness of the HUF and the still elevated inflation rate will remain decisive factors for further monetary easing.
"Life after the storm" was a good title for our May EM FX Monocle – indeed, EM FX volatilities have declined and the currencies started to recover in June.
The storm did come after the calm, as our April issue of the Monocle suggested. It may get worse before it gets better in the coming weeks, but not for long.
The HUF and HUF assets rallied on Tuesday’s hints and yesterday’s decision from the EC to enter the negotiations on financial assistance. But we believe it is too early to be relieved yet.
Following the good start of the year, EM currencies did not hold on to the gains. Yet the orderly gradual EM FX decline has not produced much volatility creating the impression of a bomb waiting to explode if only another “black swan” event strikes.
Risk is mispriced, again. And hence caution is still essential. But unless some of the key risks actually materialise, we are most likely to see Emerging currencies drift stronger over the coming months.
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VIDEO - Hungary has been one of the top stories in the Emerging Market universe in the past few months. With the country downgraded to “junk” now by all agencies IMF help is being negotiated.
The key message in our new Emerging Markets FX Outlook is that FX risks are lower, but liquidity risks are higher. We currently see interesting opportunities in CNY, risk of emergency hikes in Hungary and a strong PLN by year-end.