By Gergely Szakacs
BUDAPEST (Reuters) – Hungary’s central bank is expected to leave key rates unchanged next Tuesday, although some analysts have penciled in small rate cuts, while others say the bank could launch quantitative easing to dampen the economic fallout of the coronavirus.
In a March 16-19 Reuters poll, 13 of 15 economists said the National Bank of Hungary (NBH) would leave its base rate
Of the 12 economists who gave a forecast for the overnight deposit rate
The consensus 2020 economic growth forecast has nosedived to 0.9% from 3.5% in last month’s survey as the spread of the virus wrought havoc on the global economy, prompting factory shutdowns in Hungary and a sell-off in local stock and currency markets.
“Our assumption is that the quarantine measures will remain in place well into Q2 and the disruption is likely to hit activity, both domestically and in the euro-zone, harder than in the worst-affected quarter during the financial crisis,” said Liam Peach at Capital Economics.
Peach expects a quarter-on-quarter fall in GDP of 10% in the second quarter in Poland and the Czech Republic and 8% in Hungary. “For now, we expect a rebound in the second half of the year. But the hit to the region will intensify if the disruption continues into the summer,” he said.
The forint
But with rates already near all-time lows, most economists say the Hungarian central bank is unlikely to follow its global and regional peers in aggressive rate easing, opting instead for liquidity measures and other tools to shore up the economy.
On Tuesday the bank said it would consider relaunching its mortgage bond buying program to curb borrowing costs.
“The NBH will react on the Covid-19, but I see a fairly low chance to do it via its interest rates. I’d rather expect liquidity measures and/or announcing a proper QE,” said Peter Virovacz, an economist at ING in Budapest.
“The next step – besides inflating the liquidity in the system – would be a proper QE. For example to ramp up the bond buying scheme while not sterilizing it,” he said.
The NBH has already boosted short-term market liquidity in the past weeks and launched a new one-week foreign currency swap tender to provide local banks with liquidity on a daily basis.
It has also broadened the range of permissible collateral with corporate loans, lifting banks’ lending potential. At the same time, the government imposed a blanket moratorium on all loan repayments through end-2020.
“We expect the (NBH) will continue to boost FX swaps and will introduce a QE program,” said Marek Drimal, an economist at Societe Generale.
(Reporting by Gergely Szakacs; Editing by Frances Kerry)
