Hungary to End QE Plan in Tightening Pivot: Decision Guide
Hungary’s central bank will probably end its quantitative-easing program, raise interest rates and sharply increase its inflation forecast in a precursor to pushing borrowing costs even higher next year.
The central bank will boost the rate on required reserves by 40 basis points to 2.5% on Tuesday, according to the median estimate in a Bloomberg survey in which estimates for hikes ranged from 20 basis points to 120 basis points.
The rate decision will be at 2 p.m. in Budapest, followed by the publication of a statement, new inflation forecasts as well as a briefing by Deputy Governor Barnabas Virag an hour later.
Increases in the reserve rate, which is set monthly, are tracked by the one-week deposit facility, which became the effective base rate for the economy last month.
The interest rate offered on the weekly facility, where most commercial banks park their central bank deposits, is currently 120 basis points higher at 3.3%, and is expected to rise further on Thursday.
The central bank plans to end its program of purchasing government bonds on the secondary market soon, after months of tapering, Governor Gyorgy Matolcsy said. The program was launched last year with the aim of reducing borrowing costs and had recently acted as a brake on monetary tightening.
So far, rate increases have had only a limited impact on the forint as unprecedented government spending ahead of general elections next year blunts much of the effect of monetary tightening.
The currency fell to a record against the euro in November. The forint rose 0.2% against the euro in the past month.
Annual price-growth probably peaked in November at 7.4%, the fastest pace since 2007, but will slow only gradually, according to central bank estimates.
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