Inflation Improvement Makes Room For Rate Cuts
London-based analysts predicted last week that Hungary’s central bank rate could fall to 7% by end of 2005. They based their optimistic forecasts on the latest inflation figure that was better than expected.
Central bank rate could fall to 8% by year-end, said Wike Groenenberg, European convergence market analyst of Citigroup in London, adding that if the Hungarian forint remains strong at that level, the National Bank of Hungary (MNB) could lower its central deposit rate to 7%.
Reinhard Cluse, regional analyst of UBS, echoed Groenenberg’s optimism and said he expects a 50 basis point rate cut before the end of the month, with a similar-size cut coming in March. If the rate of inflation falls by one percentage point from the current level by year end, then the MNB will have room for a further 75 basis point cut. Most likely implemented in three 25-basis point cuts, the move could result in central deposit rates falling to 7.25% by end of 2005, he added.
According to the latest figures by the Central Statistics Office (KSH), annual inflation rate fell to 4.1% in January, lower than an average 4.4% forecast by London-based analysts and significantly under Hungarian analysts’ expectations at 4.7%.
