Hungarian rate setters end easing cycle with cut to 0.9%

By bne IntelliNews May 24, 2016

Hungarian rate setters lowered the benchmark interest rate by 15 bp to leave it at a record low of 0.9% on May 24, as expected. They also guided that the move marks the end of the easing cycle.

The Magyar Nemzeti Bank’s (MNB) decision is in line with the expectations of the majority of analysts. The rate setters delivered the first cut of waht turned out to be a three-month cycle on March 22, driven by mounting concern over weakening inflation and appreciation of the forint. With its second cut in April, the MNB also warned investors against "exaggerated" rate cut expectations.

As good as its word apparently, the MNB clearly told the market that it has now delivered its final cut, offering clear guidance to those analysts that have continued to forecast one futher cut to 0.75%.

“The inflation outlook and the cyclical position of the real economy point to maintaining the 0.9% base rate for an extended period,” the MNB noted in a statement accompanying its decision.

Some analysts had suggested the surprisingly weak macro-economic data from the first quarter, released earlier this month, - as well as the sovereign upgrade offered by Fitch on May 20, may have persuaded the MNB to extend the cycle. However, the central bank now appears to have handed over the baton on stimulus for the real economy to fiscal policy. The finance ministry has recently announced its deficit target will expand 40bp to 2.4% of GDP next year.

"Recent wage data suggest that the risk of second-round effects resulting from an excessively low level of inflation expectations has diminished," the rate setters said. Meanwhile, next year’s draft budget, which points to looser fiscal policy “also leads to the closing of the output gap,” they added.

While the MNB maintained its growth forecast of around 3% for 2016, it also admitted that the Hungarian economic output grew “more moderately than expected” in the first quarter.

"Economic growth is likely to exhibit strongly contrasting developments during the year as a whole. The [monetary policy council] expects growth to pick up notably in the second half of the year following moderate dynamics in the first half”, the central bank board added.

“Although we’re not convinced that GDP growth will return to the rates of 3% that the MPC expects, it should still strengthen after a weak Q1, weakening the case for monetary easing,” analysts at Capital Economics suggested in a note. 

In spite of the the swift rebound in CPI in April, the MNB also noted "inflation expectations remain at historically low levels ... [and] below the 3% target over the forecast period, and [is only likely to] approach it in the first half of 2018”.

To that end, Capital Economics is hardly alone in forecasting that monetary conditions will remain extremely loose. The analysts write that they expect the policy rate to remain at 0.90% into 2018. CIB Bank agrees, adding that the MNB could yet return to use unconventional measures in addition if necessary.

The rate setters also cut the overnight lending rate by 15bp, to 1.15%, and left the overnight deposit rate unchanged at -0.05%.

Related Articles

Azerbaijan's largest agri-processing conglomerate eyes London listing

Azersun Holding, the largest agri-processing conglomerate in Azerbaijan, is eyeing a public listing on the Baku and London stock exchanges in the medium term, CEO Savash Uzan told on October ... more

Poland raises €1.25bn and issues first ever 30-year Eurobond as it races the US Fed

Poland sold a total of €1.25bn of euro-denominated Eurobonds maturing in October 2046 and October 2028 on October 18. In an unexpected move - as Warsaw tends to tap markets for Eurobonds early in ... more

Czech yields vying for global top spot

The Czech Republic is challenging Switzerland for the world’s lowest yields, as speculative capital pours into local currency debt in anticipation of a boost for the koruna next summer, when the ... more

Register here to continue reading this article and 2 more for free or 12 months full access inc. Magazine and Weekly Newspaper for just $119/year.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

IntelliNews Pro subscribers click here

Thank you. Please complete your registration by confirming your email address. A confirmation email has been sent to the email address you provided.

Thank you for purchasing a bne IntelliNews subscription. We look forward to serving you as one of our paid subscribers. An email confirmation will be sent to the email address you have provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

If you have any questions please contact us at

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

IntelliNews Pro subscribers click here

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

Thank you. Please complete your registration by confirming your email address. The confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.