‘Magician’ Matolcsy Puzzles Market With Dovish Tightening Trick
‘Magician’ Matolcsy Puzzles Market With Dovish Tightening Trick
(Bloomberg) -- Hungarian central bank Governor Gyorgy Matolcsy held a rare briefing to personally explain the first monetary tightening steps since he took control in 2013. Investors and economists are still puzzling over his message.
Though decisions to raise the overnight rate and pare liquidity measures were meant to send a message that the central bank is committed to fighting accelerating inflation, expectations of a shift toward hawkishness were dashed when Matolcsy said the steps were a “one-off.” He also effectively ruled out further tightening until at least June, saying the current measures were “sufficient” to tame inflation.
Moreover the announcement of a new corporate bond-buying program -- a stimulus measure -- further clouded the picture. The forint has since plunged more than 1.35 percent against the euro, the biggest two-day loss in seven months. Forward-rate agreements used to bet on future interest-rate levels have now priced out two thirds of previously expected tightening and project the 3-month interbank rate rising to just 0.33 percent by the year end.
Here’s a round-up of what analysts are saying:
ING Group NV Senior Economist Peter Virovacz
- “It was a magician trying to trick the audience, but hardly anything has changed. If anything, the message was dovish.”
- Sees “negligible” impact from increase in overnight deposit rate to -0.05 percent from -0.15 percent
Morgan Stanley Head of CEEMEA Economics Pasquale Diana
- Tightening moves were balanced by “dovish overtones” including the corporate bond-purchase plan
- Morgan Stanley had expected a dovish tilt but the “tone surprised us”
- Central bank probably meant to cool expectations for a rate hike at each meeting
- Door still open for future policy moves
Capital Economics Emerging Europe Economist Liam Carson
- Tightening was “the least that policy makers could do” to retain credibility on fighting inflation
- Central bank communication was “remarkably dovish,” may signal “alarm” at the deterioration of the external environment
- Further monetary tightening may still be announced this year to rein in inflation, barring a significant worsening in euro-area economic conditions
Intesa SanPaolo Senior Analyst (Sandor Jobbagy)
- Policy makers may not raise interest rates again this year, but there’s likely to be a “steady upward trend” in interbank borrowing costs
- The central bank may continue to adjust liquidity via foreign-currency swaps
UniCredit Chief Economist (Dan Bucsa)
- Inflationary risks may intensify in the short term, with headline inflation peaking at close to 4 percent in January 2020
- Hungarian government bonds remain attractive on a currency-hedged basis, though longer-maturity yields will move in line with foreign demand
To contact the reporters on this story: Marton Eder in Budapest at meder4@bloomberg.net;Zoltan Simon in Budapest at zsimon@bloomberg.net
To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net, Michael Winfrey
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