Market expects Hungary's central bank to slow monetary easing pace in March.

By bne IntelliNews March 24, 2014

The Monetary Council (MC) of Hungary’s central bank is expected to cut the base interest rate by 10bps to a new record low of 2.60% at its next rate setting meeting scheduled for March 25, the majority of analysts polled by portfolio.hu said. Although the analysts were fairly united about the size of the rate cut, some of them expect an on hold decision, believing that global uncertainties could prompt rate-setters to suspend the cuts.

The central bank cut on February 18 the base rate by 15bps to 2.70%. This was the eighteenth consecutive reduction and followed a similar reduction in January 2014. It came as a surprise for the market, which expected a 10bps cut. The decision was approved with the votes of seven of the rate setters. Two members expressed view that the current level of interest rates implies that the easing cycle has reached its bottom. According to them, this was evident from the volatility of the exchange rate, the steepness of the yield curve and rises in short-term yields.

The central bankers agreed that the March issue of its quarterly inflation report would be of key importance in terms of the future conduct of monetary policy. Furthermore, the possibility of ending or continuing the easing cycle would be clearly communicated in the issue.

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