Hungarian central bank likely to slash rates next year following deceleration in economic growth

The Hungarian central bank is expected to slash rates through the next year, following a deceleration in the economic growth o the country. Also, the forint has been weaker since the MPC meeting earlier this week when the central bank surprisingly cut its overnight lending rate and RRR, which led commentators to expect actual policy rate cuts in coming months.

Last Friday, MNB economist Barnabas Virag appeared to verbally intervene when he remarked that the central bank was not at all considering lowering its main policy rate. He emphasized that monetary easing will only be done via unorthodox instruments, going forward, and hinted at the negative effects of low-interest rates.

"We ourselves forecast policy rate cuts next year after economic growth is demonstrated to have decelerated – hence, we do not take these remarks as a guarantee that rates will not be cut. What is more, our view of weakening HUF during H1 2017 is based really on the expectations of monetary easing during H1 2017, however, this may be implemented. We see EUR-HUF at 315.00 by the end of Q1 2017," Commerzbank commented in its latest research note.