MNI ANALYSIS: Hungary Maintains Loose Policy, Risks Remain

By Darren Walker

--REAFFIRMS LOOSE FINANCING CONDITIONS

     The National Bank of Hungary (NBH) left its key interest rate unchanged at

0.9% on Tuesday and reaffirmed its guidance to keep financing conditions loose

for an extended period to help inflation reach the 3% target by mid-2019.

     --LOOSE POLICY HERE TO STAY

     Despite investors highlighting that the unconventional easing measures that

started in January are having little impact so far, they are here to stay.

     The MPC considers its mortgage bond purchase program successful, with

Huf150bn of mortgage bonds purchased by the middle of April. As a result of

these measures, spreads of mortgage bonds over yields in the government

securities market fell sharply and, on average, turned negative.

     The Council also maintained its monetary interest rate swap program (MIRS)

with a cap of Huf600bn until the end of Q2 2018.

     --CPI WAIT FOR ECB

     Even though CPI is running at 2% and below the 3% target, monetary policy

is expected to maintain a dovish tilt with no further easing measures likely to

be introduced.

     Hungary's economic environment remains unchanged and in a recent survey

economists said the bank could start to increase rates but only after the ECB

tightens its own policy, (82% chance in June 2019 according to MNI Pinch) or if

inflation rises significantly.

     --RISING UST YIELD PRESSURE

     The rise of US treasury yields amid a firm USD and soft commodity prices

has pressured emerging market currency pairs. The MSCI emerging markets index

has weakened 0.6% this week, as a result EURHUF witnessed sharp gains to 313.57.

     Risk remains from the Fed that a significantly faster pace of tightening

could lead to a global growth slowdown. Geopolitical risks also remain in the

background which together with poor economic data release could trigger a fresh

bout of risk aversion.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

--MNI London Bureau; tel: +44 203-586-2232; email: darren.walker@marketnews.com

[TOPICS: M$E$$$,M$X$$$,M$$FI$,MN$FI$,MN$FX$]