The forint is likely to trade well above the 290 HUF/EUR mark until plans of Gyorgy Matolcsy, the new central bank governor, become clearer for market participants, London-based emerging markets analysts said on Monday.
In a briefing released to investors in London, Commerzbank said that Matolcsy’s actions at the next central bank meetings would be decisive for the medium-term outlook of the forint. A rate cut cycle to 4.5-5 percent is broad market consensus. However, what is creating more pressure is the expectation of measures of quantitative easing “a la Fed”, as well as unconventional measures to weaken the forint, Commerzbank’s analysts added.
However, “we expect the positive German momentum to spill over onto the Hungarian economy, thus soon making monetary policy experiments unnecessary [...] That points towards falling EUR/HUF prices over the course of the year”, they said.
In a separate report released on Monday, JP Morgan’s London-based analysts said Matolcsy’s remarks suggest that the National Bank of Hungary (NBH) will now follow more of a dual mandate than under the previous governor, Andras Simor, who placed a greater emphasis on the NBH’s primary objective of price stability.
However, “we do not anticipate any quantitative easing and we believe the NBH would only pursue this option as a crisis management tool [...] In our view, policy rate cuts will likely remain the main channel for easing monetary policy in coming months – we expect the base rate to be cut to 4.5 percent by mid-year from the current 5.25 percent provided the forint does not weaken excessively.”
Economists at BofA Merrill Lynch Global Research, the London-based research unit of Bank of America-Merrill Lynch, said on Monday, however, that they believe Matolcsy’s appointment makes their below-consensus call for the policy rate to go to 4 percent more likely. The speed of the easing is unclear since the incoming governor “may opt for faster easing”, they added.