Hungary’s three-year bond yields fell to a record low on speculation below-target inflation will allow the central bank to cut its benchmark rate further before borrowing costs rebound next year.
The yields dropped three basis points, or 0.03 percentage point to 4.47 percent, the lowest since Bloomberg began compiling the data, by 4:37 p.m. in Budapest. The forint dropped 0.3 percent to 295.4 per euro. Consumer prices increased 1.4 percent in September from a year earlier after a 1.3 percent gain in August, the statistics office in Budapest said today. The Magyar Nemzeti Bank targets inflation at 3 percent.
Prime Minister Viktor Orban is planning further cuts in utility tariffs in November after a 10 percent reduction in January. That and lower fuel prices may push inflation below 1 percent, allowing the central bank to extend the 14 months of cuts that took the benchmark rate to a record-low 3.6 percent, according to Istvan Horvath, a director at K&H Alapkezelo, the Budapest-based fund management unit of KBC Groep NV.
“There is still room for one or two rate cuts, though we’re undoubtedly getting closer to the end of the easing cycle,” Horvath, who helps oversee $3.8 billion at K&H, said in e-mailed comments. “It’s worth taking profit on short-term bonds now.”
Inflation trends warrant a “loose” policy, Csaba Kandracs, who was appointed to the Monetary Council last month, said, according to an interview in newspaper Magyar Nemzet yesterday. Central bank President Gyorgy Matolcsy’s forecast that the base rate will fall to between 3 and 3.5 percent should be regarded as “forward guidance” and “not set in stone,” Kandracs said.
Policy makers may cut the main rate by 60 basis points this year and start tightening policy in the second half of 2014, Abbas Ameli-Renani, a London-based analyst at Royal Bank of Scotland Group Plc, wrote in an e-mailed report yesterday. ING Groep NV also expects rate increases to start in the second half of 2014, Budapest-based analyst Andras Balatoni told reporters on Oct. 9.