Hungary Eyes One More Cut Before Rate Halt

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Hungary will probably reduce borrowing costs again, continuing to reverse course following a change in the team overseeing monetary policy.

After defying the global trend at the start of the coronavirus crisis by tightening monetary conditions, the central bank is now catching up with its peers.

Deputy Governor Barnabas Virag, who took over guiding policy from the unorthodox Marton Nagy in May, signaled the central bank would cut one more time at a meeting on Tuesday before standing pat for the rest of the year.

Hungary Eyes One More Cut Before Rate Halt

A majority of analysts in a Bloomberg survey expect the benchmark rate to fall 15 basis points to 0.6%, following a surprise reduction in June.

“Neither macroeconomic nor market developments stand in the way of another rate cut,” said Mariann Trippon, an analyst at Intesa Sanpaolo SpA’s Hungarian unit. “Failing to deliver would result in confusion and increased volatility on the market.”

The earlier policy tightening helped the forint recover from a record low, with the monetary authority turning to unconventional support measures to help the economy.

Last month’s surprise cut marked a new approach under the direction of Virag. His clear guidance for this month’s decision, despite still-volatile financial markets, also reflects a shift in steering investor expectations after years in which Nagy kept decisions close to his chest.

The economy and financial assets have backed the central bank’s new tactics. Inflation remains at the 3% target and the forint has traded in a narrow range against the euro.

©2020 Bloomberg L.P.

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