London Financial Analysts are unanimously expecting the Monetary Council of the National Bank of Hungary (MNB) to keep its current mild assumption unchanged at Tuesday’s interest rate conference and not modify the 0.90 percent base rate.
Pasquale Diana, the chief economist of the Morgan Stanley Group’s lending investment department at the Monetary Council’s Tuesday meeting, said the house believes that the MNB confirms its recent guideline, the core of which is that the central bank’s goal is to flatten the yield curve, not absolute, but in a relative sense.
The expert said that the essence of Morgan Stanley’s interpretation was that if the yield curve of the German Bund or the Polish government paper were more steep than the current situation, the Hungarian central bank would not necessarily aim to further align the Hungarian yield curve, but would rather try to keep the Hungarian yield curve, ensuring that the Hungarian curve remains milder in partner economies. And if other European yield curves flatten, the MNB would probably strive to make the Hungarian yield curve even more milder.
Morgan Stanley’s chief economist at London stressed that the Hungarian yield curve has been steeper than the Polish yield curve since the MNB’s January monetary session, so “it is normal for the market to underestimate this element of the monetary policy of the MNB”.
Pasquale Diana emphasized at the same time: Morgan Stanley believes that the monetary policy of the Hungarian central bank would not change even if the annual inflation in Hungary would accelerate beyond the MNB’s 3 percent central target, as the MNB is determined to increase the rate of fixed-rate lending.
Morgan Stanley’s current projection is likely to reach 2.8 percent annual average inflation in 2018 in Hungary.
The house’s long-term forecast is that the MNB’s core interest rate will remain at 0.90 percent in the fourth quarter of 2019.
Paul Fage, the chief economist at the London Investments Advisory Group on the Global Investment Advisory Group, announced Monday that the NBH’s Monetary Council’s announcement largely reiterates the last-month communiqué, maintaining the central bank’s mitigation base.
According to Fage, the twelve-month-January inflation of 2.1 percent, the same as December, and the fact that core inflation declined from 2.6 percent to 2.5 percent, prompts TD Securiti not to wait for the opinion of the Monetary Council also in relation to the inflation path.
However, according to senior London economist at TD Securities, the home is of the opinion that the MNB is also taking the risk of a mild future inflation path with a probable expectation. The Hungarian labor market situation is very tight, with the rise in nominal wages exceeding 13 percent in annual comparison, the growth rate of the domestic total product (GDP) is strong.
The opinion of TD Securities is that in this environment the MNB may be forced to tighten monetary policy this year or even August.
According to Fage, however, it is unlikely that the increase of the 0.90 percent base rate would be part of this tightening, all the more so because the key interest rate as the key interest rate is now low; this shows that the 3-month BUBOR rate is currently 2 percent.
London Economist at TD Securities says that instead of modifying the base rate, the MNB will begin to lower non-conventional easing measures and possibly raise the overnight deposit rate.
One of the largest London-based global financial and economic analysts in Capital Economics on Monday’s assessment of the situation, he believes that the Monetary Council of the MNB should have added the Taylor rule, based on a version of the Taylor rule, which attempts to model the interest rate path based on macroeconomic variables begin to tighten financial policy.
William Jackson, the chief economist of the Capital Investments Division at London’s Capital Economics, emphasized that since the beginning of the year, long-term Hungarian yields, especially in the ten-year maturity, rose more than in the case of regional compartments or Germany.
According to Jackson, the phenomenon does not appear to be linked to inflationary processes, as recent inflation figures lag behind forecast consensus.
The expert believes: a more plausible explanation is that market participants are “starting to worry” because the MNB is striving for a loose monetary policy at this late stage of the economic cycle.
Source: MTI / Image: vg.hu /