Hungary’s 2017 GDP likely to grow 3.4 pct on expectations of wage increases, says ERSTE Group

The ongoing ultra-dovish monetary policy of the Hungarian central bank should preserve its leading role regarding the formation of the short end of the yield curve. This means that, by flooding the market with extra liquidity, the central bank will be able to fine-tune interbank rates and short-term yields, which already stand at depressed levels.

However, the central bank does not want to see negative interest rates. As for the longer end of the curve, extending the time horizon of the ECB’s program should further support yields on major European markets, despite the expected slight acceleration of inflation rates.

As expected, lower spreads over major bond yields, stemming from Hungary’s decreasing vulnerability, for the time being we do not make any changes in our yield forecasts, and we continue to expect a moderate decline of long-term yields through 2017, ERSTE Group reported.

"We increased GDP growth outlook for Hungary for 2017, from 2.8 percent to 3.4 percent due to expected wage increases,” the report said.