Economy
INSTANT VIEW: Hungary slashes rate to 8% (2)
(Adds new comments)
The National Bank of Hungary has lowered the benchmark interest rate by 50 bp to 8% today. The move follows a surprise 100-bp rate cut a month ago, and a non-rate-setting meeting two weeks ago that almost resulted in an extraordinary rate cut. Like a month ago, the market was expecting 50 bp easing, however this time no surprise ensued.
György Barcza, K&H Bank, Budapest
“The National Bank of Hungary decided on another rate cut today, but this time it followed the consensus view of a 50bp move. By intention or by luck, the last move seems to have succeeded in ending the forint's recent 4-month rally and have successfully contributed to the stabilisation of the EUR/HUF pair around 270."
“If the Monetary Council continues to follow the market path on rate cuts, the currency could remain relatively stable and yields could respond to incoming news instead of the EUR/HUF. Rate-setters were lagging behind the market on rate cuts early summer, then the big cut brought them in line a month ago and now the council seems to follow the consensus. Rate setters will never admit, but rate policy is again very much focused on the currency just as in earlier years. EUR/HUF is expected to remain broadly stable therefore."
“The FRA market is discounting in base rate levels below 6.5% over the next 12 months, which creates a comfortable position for the central bank because slower rate cuts could be used to tighten if needed, while gradual recovery together with a broadly stable currency may allow it to cut the base rate step-by-step."
“This time the easing cycle looks to be more cautious and successful then the previous one less then a year ago. Safeguarding disinflation and the 2010 budget are the next key challenges, so there could be bumps on the road ahead, but in general Hungary looks a bit like Slovakia 2004 in having the opportunity to establish a credible nominal convergence path."
“The 5y5y forward spread narrowed to the pre-crisis level of 200bp, so the quick rally due to the recovery from the crisis is probably over. There is however still long way on improving the fundamentals, so if fiscal responsibility is strengthened and disinflation continues (even though the VAT hike may hide it on the surface), Hungarian local markets may continue to generate excessive return over the eurozone bond market."
Gergely Suppan, Takarékbank, Budapest
“As widely expected the National Bank of Hungary cut the Hungarian base rate by 50bp to 8%. Markedly improving market conditions, lower than expected inflation and GDP supported a further ease of monetary policy. Moreover, favourable market conditions and sharply narrowing imbalances of the Hungarian economy will support additional rate cuts towards the end of the year bringing the base rate to 7.5% by December and to 7% by the middle of 2010. Economic conditions also favour continued monetary easing given the lack of price pressure and prolonged recession."
Timothy Ash, Royal Bank of Scotland, London
“No big surprises in the NBH decision to cut its main base rate by 50bps today to 8%. The NBH has now cut rates by 350bps since their post-Lehman peak of 11.50% in October 2008. Official, nominal and real, rates in Hungary, nevertheless, remain amongst the highest in the region, which reflects on-going concerns over debt sustainability and the sensitivity of household/corporate balance sheets to FX weakness. The National Bank of Hungary remains acutely sensitive to the level of the forint, with recent forint stability/strength enabling the Monetary Council to feel comfortable in cutting rates without endangering the stability of the exchange rate."
“NBH governor Simor in the press conference that followed the rate decision failed to indicate the scope of further rate cuts, albeit the easing bias clearly remains with perhaps the key determinant herein still being the level/stability of the exchange rate, rather than the level of inflation. Any global risk reversal would likely force the NBH to stall in further cutting rates, and it is still not inconceivable that the NBH would raise rates again this year, if the forint began to weaken back towards the 300 level against the Euro."
Piotr Kalisz, Citigroup, Warsaw
“In line with our expectations, the Hungarian Monetary Policy Council has cut the base interest rate by 50bps to 8.00%. The rate cut has pushed market rates higher and the 2-year IRS rose by over 10bp to 7.15% which suggests that some market participants expected a larger cut, especially after deeper-than-expected rate reduction in July."
“Despite improvement in external growth prospects, the scale of recession in Hungary and the lower risk aversion are still conducive to further interest rate reductions. However, we uphold our view that the monetary easing will be rather a gradual process as the central bank will try to avoid excessive interest rate volatility. This view seems to be confirmed by today's comments by governor Simor, according to whom monetary policy “should be predictable"."
“We expect the easing cycle to continue in the coming months and we think interest rates will be cut by at least 50-100bps until the year-end while the base rate could reach 6.0-6.5% in 1H 2010. Since the FRA curve is suggesting rates at 6.25% within next twelve months, it seems the market has already priced in most of the likely easing and therefore room for a fall in rates in short term looks rather limited."
Stanislava Pravdova, Danske Bank, Copenhagen
“We believe that today's 50bp rate cut, which was less aggressive compared with the 100bp cut delivered at July's monetary policy setting meeting, has to be seen in light of the less stable Hungarian forint (HUF) recently, which prevented the NBH from cutting more aggressively."
“The Hungarian economy remains in deep recession with no real inflationary pressure. Therefore if the risk appetite continues to be present in financial markets - supporting the Hungarian FX and the solid demand for Hungarian fixed-income markets - the NBH will continue in monetary easing providing stimulus to the stressed Hungarian economy. After today's rate cut, we expect another 100bp cuts to be delivered over the next three to six months. The market pricing suggests roughly between 100bp to 150bp worth of cuts to be delivered over the next six months."
“There was a very limited reaction in FX markets after the rate decision as the size of the rate cut was broadly expected. Taking into account the very limited reaction in FX markets, the NBH will continue to feel comfortable with further monetary easing going forward, although this would, of course, be conditional on the development of the forint."
Orsolya Nyeste, Erste Bank, Budapest
“Although the fact that the council did not surprise the market today and carried out a decision which was in line with expectations, uncertainties around the future rate path have not really decreased. Furthermore, as the latest economic predictions of the central bank have showed hardly any change compared to May, they are unlikely to have a critical role in the coming rate decisions. Essentially, the situation has not changed: the real economy needs lower rates, while the current inflation outlook seems to allow more cuts. Thus, the key factor will remain the assessments of risks, reflected in the development of the forint exchange rate, CDS spreads and the state of the bond market. We maintain our 7.50% prediction for the year-end base rate, with risks rather on the downside."
The National Bank of Hungary has lowered the benchmark interest rate by 50 bp to 8% today. The move follows a surprise 100-bp rate cut a month ago, and a non-rate-setting meeting two weeks ago that almost resulted in an extraordinary rate cut. Like a month ago, the market was expecting 50 bp easing, however this time no surprise ensued.
György Barcza, K&H Bank, Budapest
“The National Bank of Hungary decided on another rate cut today, but this time it followed the consensus view of a 50bp move. By intention or by luck, the last move seems to have succeeded in ending the forint's recent 4-month rally and have successfully contributed to the stabilisation of the EUR/HUF pair around 270."
“If the Monetary Council continues to follow the market path on rate cuts, the currency could remain relatively stable and yields could respond to incoming news instead of the EUR/HUF. Rate-setters were lagging behind the market on rate cuts early summer, then the big cut brought them in line a month ago and now the council seems to follow the consensus. Rate setters will never admit, but rate policy is again very much focused on the currency just as in earlier years. EUR/HUF is expected to remain broadly stable therefore."
“The FRA market is discounting in base rate levels below 6.5% over the next 12 months, which creates a comfortable position for the central bank because slower rate cuts could be used to tighten if needed, while gradual recovery together with a broadly stable currency may allow it to cut the base rate step-by-step."
“This time the easing cycle looks to be more cautious and successful then the previous one less then a year ago. Safeguarding disinflation and the 2010 budget are the next key challenges, so there could be bumps on the road ahead, but in general Hungary looks a bit like Slovakia 2004 in having the opportunity to establish a credible nominal convergence path."
“The 5y5y forward spread narrowed to the pre-crisis level of 200bp, so the quick rally due to the recovery from the crisis is probably over. There is however still long way on improving the fundamentals, so if fiscal responsibility is strengthened and disinflation continues (even though the VAT hike may hide it on the surface), Hungarian local markets may continue to generate excessive return over the eurozone bond market."
Gergely Suppan, Takarékbank, Budapest
“As widely expected the National Bank of Hungary cut the Hungarian base rate by 50bp to 8%. Markedly improving market conditions, lower than expected inflation and GDP supported a further ease of monetary policy. Moreover, favourable market conditions and sharply narrowing imbalances of the Hungarian economy will support additional rate cuts towards the end of the year bringing the base rate to 7.5% by December and to 7% by the middle of 2010. Economic conditions also favour continued monetary easing given the lack of price pressure and prolonged recession."
Timothy Ash, Royal Bank of Scotland, London
“No big surprises in the NBH decision to cut its main base rate by 50bps today to 8%. The NBH has now cut rates by 350bps since their post-Lehman peak of 11.50% in October 2008. Official, nominal and real, rates in Hungary, nevertheless, remain amongst the highest in the region, which reflects on-going concerns over debt sustainability and the sensitivity of household/corporate balance sheets to FX weakness. The National Bank of Hungary remains acutely sensitive to the level of the forint, with recent forint stability/strength enabling the Monetary Council to feel comfortable in cutting rates without endangering the stability of the exchange rate."
“NBH governor Simor in the press conference that followed the rate decision failed to indicate the scope of further rate cuts, albeit the easing bias clearly remains with perhaps the key determinant herein still being the level/stability of the exchange rate, rather than the level of inflation. Any global risk reversal would likely force the NBH to stall in further cutting rates, and it is still not inconceivable that the NBH would raise rates again this year, if the forint began to weaken back towards the 300 level against the Euro."
Piotr Kalisz, Citigroup, Warsaw
“In line with our expectations, the Hungarian Monetary Policy Council has cut the base interest rate by 50bps to 8.00%. The rate cut has pushed market rates higher and the 2-year IRS rose by over 10bp to 7.15% which suggests that some market participants expected a larger cut, especially after deeper-than-expected rate reduction in July."
“Despite improvement in external growth prospects, the scale of recession in Hungary and the lower risk aversion are still conducive to further interest rate reductions. However, we uphold our view that the monetary easing will be rather a gradual process as the central bank will try to avoid excessive interest rate volatility. This view seems to be confirmed by today's comments by governor Simor, according to whom monetary policy “should be predictable"."
“We expect the easing cycle to continue in the coming months and we think interest rates will be cut by at least 50-100bps until the year-end while the base rate could reach 6.0-6.5% in 1H 2010. Since the FRA curve is suggesting rates at 6.25% within next twelve months, it seems the market has already priced in most of the likely easing and therefore room for a fall in rates in short term looks rather limited."
Stanislava Pravdova, Danske Bank, Copenhagen
“We believe that today's 50bp rate cut, which was less aggressive compared with the 100bp cut delivered at July's monetary policy setting meeting, has to be seen in light of the less stable Hungarian forint (HUF) recently, which prevented the NBH from cutting more aggressively."
“The Hungarian economy remains in deep recession with no real inflationary pressure. Therefore if the risk appetite continues to be present in financial markets - supporting the Hungarian FX and the solid demand for Hungarian fixed-income markets - the NBH will continue in monetary easing providing stimulus to the stressed Hungarian economy. After today's rate cut, we expect another 100bp cuts to be delivered over the next three to six months. The market pricing suggests roughly between 100bp to 150bp worth of cuts to be delivered over the next six months."
“There was a very limited reaction in FX markets after the rate decision as the size of the rate cut was broadly expected. Taking into account the very limited reaction in FX markets, the NBH will continue to feel comfortable with further monetary easing going forward, although this would, of course, be conditional on the development of the forint."
Orsolya Nyeste, Erste Bank, Budapest
“Although the fact that the council did not surprise the market today and carried out a decision which was in line with expectations, uncertainties around the future rate path have not really decreased. Furthermore, as the latest economic predictions of the central bank have showed hardly any change compared to May, they are unlikely to have a critical role in the coming rate decisions. Essentially, the situation has not changed: the real economy needs lower rates, while the current inflation outlook seems to allow more cuts. Thus, the key factor will remain the assessments of risks, reflected in the development of the forint exchange rate, CDS spreads and the state of the bond market. We maintain our 7.50% prediction for the year-end base rate, with risks rather on the downside."
