Economy
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Details expected
At its previous policy meeting, the MPC decided on two new unconventional monetary tools in November therefore analysts do not expect the rate-setters to take further steps on Tuesday. The 0.9% base rate is projected to be left on hold, just like the overnight deposit and lending rates. This puts the Inflation Report into the centre of attention and some details might also be revealed regarding the new unconventional tools.
The second tool is basically quantitative easing: The MNB will launch a "targeted programme aimed at purchasing mortgage bonds with maturities of three years or more". The central bank expects both programmes will help banks feel more at ease offering competitive fixed-term loans, funded by mortgage bonds.
Ákos Kuti, head of department at MKB Bank’s Analysis Centre, reminded that based on preliminary communication, the decisions about the operative details of the programmes are to be made in December. Péter Virovácz, chief analyst at ING Bank, underlined that the most important question about the unconventional measures has not been answered yet - and that is the pricing.
GDP estimate may be revised upwardly
The MNB will publish its new GDP and inflation estimats, as well. We don’t expect any major change compared to the September prognoses, Kuti said. In their previous report MNB staff projected 3.6% GDP growth for this year, 3.8% for 2018 and 3.2% for 2019. Virovácz believes this year’s growth will certainly beat the MNB’s estimate, reminding that Q3 output was up 4.1% yr/yr (adjusted for calendar effects, after the preliminary print was adjusted upwardly by 0.3ppt), and Q1-Q3 growth reached 3.8%. Additionally, macroeconomic data for the fourth quarter have also been favourable so far.
The MNB forecasted 2.4% annual average inflation for 2017, 2.5% for 2018 and 2.9% for 2019. “The last time the ECB revised its CPI estimate downwardly, the MNB reacted at once and followed suit, signalling that the inflation target would be reached sustainably only by the middle of 2019," Virováncz added.
The European Central Bank, however, revised its 2018 CPI estimate upwardly last week. “It will be worth watching if the MNB will have the same response or not. We would be hugely surprised if the MNB trimmed its inflation projection and bring the date for reaching its target forward. The market would interpret such move as a warning that tightening was on its way, and that is what the MNB wants to avoid at all cost," Virovácz said.
When should we expect monetary tightening?
"The MNB is likely to keep communicating that in order to reach the inflation target sustainably it will aim for keeping monetary conditions loose for a long time," Kuti said.
the ECB is in no hurry to phase out its asset purchase programme and the Fed is also expected to continue to raise rates and reduce its balance sheet only slowly in 2018. ban.
ECB policymakers agreed in October to scale back buying to EUR 30 billion a month from EUR 60 bn as of next year. The Fed increased its key lending rate to 1.25-1.50%, but said tightening would be slow.Some of the analysts in Portfolio’s poll believe that the MNB will hike rates in 2019 for the first time, but some believe the tightening cycle will not start before 2020. “Our base-case scenario is that yields on short-maturity government securities will start to meaningfully approach the base rate (which will not be changed by then) only in the second half of 2019," Péter Vizkelety, head of Fundamenta Treasury, told Portfolio. The first rate hike is likely to come even later. Changes in BUBOR levels are likely to be more relevant.
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