Hungary Set to Cut Rates to Record Low as Fed Maintains Stimulus

Hungary’s central bank will probably cut its benchmark interest rate to a record low after inflation slowed and the U.S. Federal Reserve refrained from paring monetary stimulus.

The Magyar Nemzeti Bank in Budapest will reduce the two-week deposit rate to 3.6 percent from 3.8 percent, according to 15 of 20 economists in a Bloomberg survey. Three expect a cut to 3.7 percent, one to 3.65 percent and one to 3.55 percent. The central bank will announce the decision at 2 p.m.

Monetary-policy makers slowed the pace of easing last month to 20 basis points after 12 consecutive monthly quarter-point cuts as they seek to safeguard financial stability and the attractiveness of local assets. Central bank President Gyorgy Matolcsy said Sept. 11 that “loose” monetary policy in developed countries and a central bank plan to boost corporate lending in Hungary are expanding rate-setters’ room to maneuver.

“Fundamentals such as weak growth and nose-diving inflation remain supportive, and it’s unlikely that recent market developments are ‘frightening’ enough for the dovish Monetary Council to stop cutting rates,” analysts led by Mariann Trippon at Intesa SanPaolo SpA (ISP)’s CIB Bank in Budapest, said in an e-mail.

The forint traded at 298.71 per euro at 5:34 p.m. in Budapest, little changed from Sept. 20. It has weakened 0.2 percent in the past month. The yield on the benchmark government bond maturing in 2023 dropped 88 basis points to 5.86 percent yesterday after reaching 6.74 percent on Sept. 5.

Rate Guidance

The benchmark interest rate may fall to between 3 percent and 3.5 percent, Matolcsy said on July 23. Forward-rate agreements indicate that investors see it dropping to as low as 3.35 percent in the next three months.

Hungarian policy makers were split on how much to cut rates last month, with five Council members supporting the 20 basis-point reduction and two voting for a 10 basis-point cut, according to the minutes of the meeting, published Sept. 12.

Rate setters cited subdued economic growth and the slowest inflation in almost 40 years as driving rate cuts, while stressing that financial stability and Hungary’s risk assessment may limit the scope of easing.

Second-quarter economic growth slowed to 0.1 percent from the previous three months, compared with 0.6 percent in January-March. The inflation rate was 1.3 percent in August, the slowest in more than 39 years, remaining below the central bank’s 3 percent medium-term target for a seventh month.

The forint will remain below 300 per euro in the short term as long as international market sentiment remains “calm” even as the central bank keeps lowering the interest rate, Karoly Bamli, currency trader at Commerzbank AG’s Budapest unit said in an e-mail yesterday.

“The question is how long will the market tolerate the diminishing carry and the loosening of domestic fiscal policy,” he said.

To contact the reporter on this story: Edith Balazs in Budapest at

To contact the editors responsible for this story: Balazs Penz at; James M. Gomez at

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