Hungary c.bank chief Matolcsy to hold extraordinary press conference today

A press conference is to be held today at 2:30 P.M. by MNB Governor György Matolcsy, Deputy Governor Ádám Balog and managing director Márton Nagy. The rate decision will be announced a 2 P.M., and we can expect an important announcement, otherwise there would be no press conference, only an official statement by the MPC at 3 P.M..

The market expects the Council to lower the base rate by 10 basis points to a new record low of 1.4% today, but uncertainty about the end of the easing cycle remains large. It is possible that Matolcsy and his team will either clear up some of this uncertainty or explicitly announce when the rate cut cycle will end. This expectation could be behind the abrupt strengthening of the forint versus the euro.

“MNB has cut rates by a cumulative 50bp so far this year and a cumulative 550bps since 2012, but with core inflation stabilising over the past month, and forecast by NBH to accelerate to almost 3% in 2016, the MPC would not want to drive real interest rates even more negative," London-based analysts at Commerzbank commented on Tuesday.

They pointed out, however, that “during September, we will witness the introduction of a new benchmark rate -- a 3mth deposit rate -- which will be set around the same 1.4% level as the present 2 week deposit rate. All these developments are now more or less discounted."“Good risk appetite in the aftermath of a third Greek bailout and large bond redemptions in the eurozone are likely to support Central European assets. In fact, benign market conditions could trigger a deeper cut of 15bp, with the market unlikely to react negatively to further easing," commented Dan Bucsa, a London-based analyst at UniCredit, in a research note on Monday.

He expects rate cuts to end at 1.20-1.30%, depending on the timing of the first Fed hike. “If this happens in September, as we currently expect, a cut in August remains on the cards, but one in September could be prevented by a temporary sell-off in EM assets."

It is also possible that the MNB management will today address not only interest rate policy but will also announce some other measure. For instance, in an article published on the Hungarian site of Portfolio yesterday MNB staff members raised the possibility of lowering the bank’s foreign exchange reserves without hurting compliance with the applicable reserve rules (Guidotti and combined models).

• Tags:
• MNB,
• economy,
• central bank,
• monetary policy,
• monetary council,
• györgy matolcsy