Economy
Hungarian cenbank does not have to tighten policy any time soon - analysts
Bank of America Merrill Lynch and Morgan Stanley have published trip notes after recent visits to Budapest and other CEE capitals.
“CEE trips reveal no major pressures on regional central banks to change their respective course of action. The Czech National Bank (CNB) keeps on hiking. The National Bank of Hungary (NBH) and theNational Bank of Poland (NBP) stay dovish, delaying policy tightening as much as they can. The National Bank of Romania (NBR) has found reasonable justifications to pause," BofA-ML summed up its findings on 22 October.
Morgan Stanley believes that in Hungary, higher oil could push CPI above 4% year on year in the first half of 2019, “potentially causing the NBH to start tightening liquidity in March or June, though still at a measured pace."
Analysts at BofA-ML believe that as long as EUR/HUF is stable, the Hungarian central bank will likely manage to stay on hold until mid-2019.
The central bank has expressed readiness, and reluctance at the same time, to tighten policy soon, they said.
In their view, the Monetary Council will only take key decisions in the Inflation Report months, so that it can incorporate all factors, including the HUF developments, to assess the inflation outlook.
“It downplays the impact of various volatile components on the CPI in recent months, while the second round impact of FX depreciation and higher oil is to be seen.
“CEE trips reveal no major pressures on regional central banks to change their respective course of action. The Czech National Bank (CNB) keeps on hiking. The National Bank of Hungary (NBH) and theNational Bank of Poland (NBP) stay dovish, delaying policy tightening as much as they can. The National Bank of Romania (NBR) has found reasonable justifications to pause," BofA-ML summed up its findings on 22 October.
Morgan Stanley believes that in Hungary, higher oil could push CPI above 4% year on year in the first half of 2019, “potentially causing the NBH to start tightening liquidity in March or June, though still at a measured pace."
Analysts at BofA-ML believe that as long as EUR/HUF is stable, the Hungarian central bank will likely manage to stay on hold until mid-2019.
The central bank has expressed readiness, and reluctance at the same time, to tighten policy soon, they said.
We believe the NBH is sensitive to sharp HUF depreciation, so it will not delay changing its stance at all costs, but will need a significant trigger to move before 2Q 2019.
The analysts noted that the NBH has signaled its readiness but still wait-and-see mode for monetary tightening.In their view, the Monetary Council will only take key decisions in the Inflation Report months, so that it can incorporate all factors, including the HUF developments, to assess the inflation outlook.
“It downplays the impact of various volatile components on the CPI in recent months, while the second round impact of FX depreciation and higher oil is to be seen.
“If EUR/HUF remains within a stable range, we think the NBH will not want to tighten policies until 2H 2019, with announcement for changes in its liquidity management probably in March at the earliest."
The main toolkit for the first steps of monetary tightening is a combination FX swaps and overnight deposit rates, the analysts added.
