Investors extended bets on Hungary cutting interest rates after central bank President Gyorgy Matolcsy said the slowest inflation in 39 years gives more scope for monetary easing.
Forward-rate agreements for three-month interest in three months time fell 12 basis points to 3.39 percent by 3:36 p.m. in Budapest, 33 basis points below the Budapest interbank offered rate, the biggest discount in four weeks. The forint declined 0.2 percent to 299.76 per euro, taking its depreciation in the third quarter to 1.5 percent.
Consumer price growth slowed to 1.3 percent in the year to August from 1.8 percent the previous month, the statistics office said today. Magyar Nemzeti Bank reduced benchmark borrowing costs by 20 basis points last month to a record 3.8 percent and the room to cut further is “expanding, not narrowing” in the “favorable” inflation environment, Matolcsy told reporters today.
“The very low headline inflation supports continued National Bank of Hungary rate cuts,” Daniel Hewitt, a London-based economist at Barclays Plc, wrote in an e-mailed report today before Matolcsy’s comments. “We do not expect the NBH will hike rates before 2015.”
Hungary may reduce the benchmark rate to as low as 3 percent if the forint’s level allows, Hewitt said, with inflation likely to slow further this year and next on utility and energy price cuts.
Nine-month forward-rate agreements, which last week priced in an increase of as much as 38 basis points, traded less than one basis point above the BUBOR today.
Yields on the government’s 10-year forint-denominated bonds fell 15 basis points to 6.38 percent, the lowest in three weeks.
The Monetary Council is extending the Funding for Growth program, which provides interest-free funding for banks to boost lending to businesses, Matolcsy said. The program, which provided 750 billion forint ($3.3 billion) from June through August, will be reopened with as much as 2 trillion forint.
The funding plan and “loose” monetary policy in developed countries also expands the central bank’s room for maneuver, Matolcsy told reporters.