Hungary to Hold Rates Despite Market Tremors: Decision Day Guide

(Bloomberg) --

Hungary’s central bank will look past the weakest forint in more than a year and keep borrowing costs near zero as policy makers wait for action from the euro area.

The monetary authority will keep the overnight deposit rate -- the main interest-rate tool for influencing financing conditions -- at minus 0.05%, according to all economists in a Bloomberg survey. It will also probably leave its unconventional policy setup unchanged, before a scheduled review in September based on updated economic forecasts.

While global market jitters in the wake of a U.S.-China trade war have pushed the forint within a percent of a record low against the euro, easing price pressures are providing central bankers cover for one of the loosest monetary policies in eastern Europe. Core inflation stripped of the impact of indirect taxes, policy makers’ most-closely watched measure, slowed to an annual 3.2% in July and neared the authority’s target.

“Price data give little reason for the central bank to adjust its monetary policy, especially as the next meeting on Sept. 24 will have a new inflation report and will follow decisions by the ECB and the Fed,” said Raiffeisen Bank analyst Zoltan Torok.

Still, the recent tide of monetary-policy easing across the globe means Hungary will probably refrain from taking a third modest tightening step next month after cutting a target of surplus liquidity in the economy and raising the overnight rate in March and June.

With more euro-area easing probably on its way in September, some investors are predicting an eventual return to looser policies in Hungary in the future. Money-market traders have priced out all tightening for the next 12 months. Forward-rate agreements suggest the 3-month Bubor interbank rate, the main gauge of financing conditions in the economy, will rise 10 basis points to 0.37% in the last three months of 2020.

--With assistance from Harumi Ichikura.

To contact the reporter on this story: Marton Eder in Budapest at meder4@bloomberg.net

To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Andrea Dudik, Peter Laca

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