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Hungarian Central Bank Likely To Tighten Monetary Policy, Say London Analysts

By Tamás Székely // 2017.09.19.

The National Bank Of Hungary (MNB) is set to tighten its loose monetary policy next year to avoid stoking inflation and asset price bubbles, London-based emerging markets economists said ahead of the Monetary Council’s rate-setting meeting on Tuesday.

Analysts at Capital Economics, a major London-based global consultancy, said they had pencilled in 110bps of hikes to the policy rate, taking it to 2.00% by end-2018. But, with monetary policy likely to be loosened at this week’s Monetary Council meeting, there is a growing risk that the MNB “gets caught behind the curve and is forced into more aggressive rate hikes further ahead”, they added. Hungary’s economy has yet to show signs of overheating despite mounting evidence that the economy is running into capacity constraints, but as balance sheets improve, households are likely to spend a greater proportion of their incomes, boosting domestic demand. “At the very least, we expect this to cause core inflation to rise sharply over the coming quarters, pushing headline inflation above the central bank’s 3% target,” Capital Economics said.

BMI Research, a Fitch Group company, said in a separate note that rising inflation will present a dilemma for central banks in the CEE region, many of which are hesitant to hike interest rates well before the European Central Bank for fear of excessive currency appreciation. “The clearest example of this is the Hungarian National Bank, which despite rising core inflation and interest rates being essentially at zero, has pledged to continue easing via unconventional measures over the coming months.” However, “we believe that at some point in 2018 these central banks will be compelled to adopt a more hawkish stance and begin gradually bringing interest rates up from historic lows”, analysts at BMI Research said.

via and MTI