Hungary’s central bank may opt for a new rate cut next week after an unexpected 25bp easing in August, London-based emerging markets economists said in an Econews poll prior to the Monetary Policy Council’s meeting next Tuesday. Analysts at 4cast, a major London-based financial consultancy, said that once the external MPC members decided to assume the risk of “an unhappy 4:3 vote (in August), the ice has been broken, a precedent has been made”.
Thus, more rate cuts could come in further tight votes, despite the opposition of the three internal members and despite the fact that the upcoming CPI report in September may not unambiguously support the case for monetary easing
Accordingly, “we expect rates to be trimmed by another 25bp in September”. It seems the MPC may cut further in the coming months, even without a deal with the IMF, unless the external backdrop suddenly deteriorates, they said.
Obviously, “an unexpected agreement with the international lenders” could speed up the process of easing.
At the same time, the message of the tight vote and the discord within the MPC “will continue to stay on the back of the minds of many (investors), and in an adverse external backdrop it may serve as an argument to inflate any potential bearish momentum”, 4cast’s analysts said.
Emerging markets economists at Morgan Stanley said on Friday that “while very likely to be a close call (4-3), we expect another 25bp cut at Tuesday’s meeting”.
Next week’s meeting will be an important test of the NBH’s determination to bring rates lower. The new staff Inflation Report will almost certainly show a higher inflation trajectory. While this is a strong reason for the hawks to rule out a discussion of a cut, “we think that the four external members may have the upper hand again”.
They may be able to justify a cut with a renewed emphasis on softer core inflation pressures, a consolidation of the recent improvement in risk metrics and continued government engagement with the IMF and EU. The new and more explicit emphasis on growth could also add to the arguments for a rate cut, Morgan Stanley’s London-based analysts said.
Economists at Bank of America-Merrill Lynch’s London-based research unit (BofA Merrill Lynch Global Research) said on Friday that weak economic data and a relatively benign stance of the government towards IMF-EU leave the door open for another 25bp rate cut next week.
“As we hold a relatively constructive view on the IMF loan negotiations outcome, we continue to look for policy rate to fall to 6pc by year-end”, they added.
