BUDAPEST, Aug 25 (Reuters) – Hungary’s central bank is expected to continue its 100 bps rate cuts next week to revive a stagnating economy, taking its one-day deposit rate to 14%, a Reuters poll showed on Friday.
The National Bank of Hungary (NBH) cut its one-day deposit rate by 100 basis points (bps) in May, June and July, and flagged further possible “gradual” cuts as it carries on with its easing cycle, the first in Central Europe.
Hungary’s annual inflation slowed to 17.6% in July and is expected to be single-digit by October-November, the government said. However, rampant inflation has hammered consumption as real wages fell this year, despite hefty wage hikes.
Eight economists surveyed between Aug. 21 and 25 unanimously forecast another 100 bps cut in the one-day rate to 14% next Tuesday. The 13% base rate is expected to stay unchanged, and the two rates aligned in September.
Hungarian interest rates are the highest in the European Union.
“We expect the NBH to ease its 1-day depo rate by 100bp to 14% at its upcoming August 29 meeting. We also see the central bank maintaining its forward guidance for a cautious, gradual and predictable easing cycle on the back of upside risks to near-term inflation and slower-than-expected progress on EU funds negotiations,” Morgan Stanley said in a note.
Peter Virovacz, an analyst at ING Bank, said the central bank may give forward guidance at next week’s meeting, to try and anchor market expectations for further rate cuts.
“With the expected merger of the base and effective rates in September seemingly a done deal, the time has come to think ahead. We see the NBH using its August meeting to manage market expectations for monetary policy in the fourth quarter,” Virovacz said.
The NBH introduced a one-day deposit rate in October as an emergency measure to shore up the forint which had hit all-time lows of 430 to the euro. The currency has since recovered to trade at 383.20 on Friday but analysts said risks of renewed falls have not gone away and that could make the central bank cautious.
Average inflation is projected to fall to 5.5% in 2024 from 17.8% this year. The economy will stagnate at best.
Reporting by Krisztina Than; Editing by Susan Fenton
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