By Gergely Szakacs and Anita Komuves
BUDAPEST, March 22 (Reuters) – Hungary’s central bank is expected to return to a 75-basis-point pace of easing next Tuesday, lowering its base rate to 8.25% HUINT=ECI after increased market volatility drove the former nearby one-year minimum against the euro.
The cut to the highest reference of the European Union would bring Hungary closer to the key rate of 7% in Romania, where so far strong underlying pressures and tax increases at the beginning of the year. prevented the central bank of relaxation.
The National Bank of Hungary has faced pressure from Prime Minister Viktor Orban’s government to cut borrowing costs to help the country’s recovery. It cut its base rate by 75 bps in January before speeding up the rate of cuts to 100 bps last monthaided by a retreat in price growth from the EU’s highest levels.
The departed was also pressed by proposed change to oversight of the central bank, which investors fear could undermine its independenceand a move by European lawmakers to reverse a decision to release 10 billion euros of funds to Hungary.
On Friday, the forint – central Europe’s worst performing currency this year – fell 0.7% against the euroEURHUF=, making the outcome of Tuesday’s rate decision highly uncertain. It has lost 3.5% so far this year.
While the median forecast of 14 economists in a March 18-22 survey projects a 75-bps cut, forecasts include bets for a 100-bps cut, as well as a 50-bps move, which would be the smallest cut. since the bank launched its rate easing cycle last May.
“Despite accelerating to 100bp of rates in February, we expect the NBH to return to a slower pace of easing due to increased FX volatility and thus cut its base rate by 75bp,” Morgan Stanley economists said in a note.
“Going forward, we expect the NBH to slow its pace of rate hikes further to 50bp per meeting in April.”
The clash between Orban and his former ally, bank governor Gyorgy Matolcsy, who escalated since the 2022 election, has led investors to reduce the extent of easing before the end of 2024.
“At the beginning of the year, previous tariff agreements were priced in a 5.2% base rate for the end of this year, but now the market prices in a rate above 6%,” said Mihaly Otvos, trader at CIB Bank.
“In the past month the expectation for the year-end rate has risen by at least half a percentage point because the market’s understanding of the communication from the central bank is that the NBH will pause after the May or June cut.”
The median forecast in the survey sees the bank cutting its base rate to 6% by the end of the year, unchanged from levels projected last month.
(Reporting by Gergely Szakacs; Editing by Christina Fincher)
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