Hungary interest rates

The National Bank of Hungary (MNB) surprised the markets on Tuesday by lopping 20 basis points off its policy interest rate to leave it at 2.1 per cent a year, a new record low.

But Gyorgy Matolcsy, central bank governor, said Tuesday’s cut marked the end of the bank’s two-year cutting cycle. 

Predicting what the Hungarian central bank is going to do is becoming something of a fools game. Last month, the bank cut rates for the 18th time in a row. So far, so predictable – except the bank changed from 20 basis point cuts (as it had used five times previously) to 15bp.

On Tuesday, the bank cut again – a 19th consecutive cut – but confounded most analysts who had predicted that the weakened currency would give the MPC reason to reduce by a smaller margin. No chance – the bank stuck to its new 15bp reduction, dropping rates from 2.85 per cent to 2.7 per cent. Where will it end? 

The markets just aren’t reading the script, it seems. On Thursday the Hungarian economy ministry issued its latest upbeat economic release: “The number of people in work exceeds 4m” – that’s 235,000 more in work than when the Fidesz government took over in 2010, it announced in triumph. Minister Mihaly Varga was equally upbeat in a guest post on beyondbrics this week.

So if Hungary is in such good shape, how come the forint has been so badly hit? 

The Hungarian forint set off on a roller coaster ride on Wednesday, buoyed at first by optimism and then buffeted by a sell-off across emerging market currencies, exacerbated by dovish signals from policy makers at home. The forint fell to as much as Ft310 to the euro, its weakest level in more than a year and a drop of 2.1 per cent from Tuesday’s close of Ft303.6. 

New year, new cut: Hungary’s central bank trimmed its base rate by 15 basis points to 2.85 per cent on Tuesday, a move that surprised analysts only by its size – being the first of its kind after the monetary council turned to 20 basis point cuts in the second half of last year. It brings Hungary’s policy rate to yet another all-time low, down from 7 per cent when the bank starting cutting in August 2012, as inflation stays under control and growth remains a concern. 

As expected by the markets, Hungary’s central bank cut the base rate from 3.4 per cent to 3.2 per cent on Tuesday – the sixteenth consecutive monthly cut since the process began in August 2012.

The Hungarian forint depreciated slightly on the news, climbing a fraction to 298.48 to the euro in afternoon trading. 

Hungary’s central bank once again cut the base rate on Tuesday – for the fifteenth consecutive month – trimming 20 basis points off the previous figure to bring the key rate down to another record low of 3.40 per cent.

That means Hungary has, slice by slice, capitalised on its improving inflation figures and the benign global climate to more than halve the base rate from August last year, when it stood at 7.00 per cent. 

Hungary’s central bank made its 12th consecutive interest rate cut on Tuesday, trimming its policy rate from 4.25 to 4 per cent a year, a record low. The move was widely expected.

Gyorgy Matolcsy, central bank governor, was due to speak after the decision to give guidance on the future direction of policy. A short note issued with the decision suggested the bank’s easing cycle may be coming to an end. More on this later. 

Two key EM rate decisions today in Turkey and Hungary, and the first is in: Turkey’s central bank has raised its overnight rate by 75 basis points to 7.25 per cent, a bigger increase than expected by many. Read more over on FastFT.

Later on Tuesday Hungary is expected to push its cutting cycle further. Why are these central banks taking such different paths? In a nutshell: it’s the current account. 

It’s getting rather routine: another rate setting meeting at the Hungarian central bank, another rate cut of 25 basis points down to another record low rate. On Tuesday this pattern took the rate down for the ninth consecutive month to 4.75 per cent.

About the only upset in this otherwise well-rehearsed show was was a mistakenly sent alert on Bloomberg terminals that the rate had been reduced to a mere 1 per cent. Cue a flurry sell off in the forint, before the damage could be repaired (see chart) – and business was back to normal, with the Hungarian currency trading at Ft 299.48 to the euro at 5pm Europe time. 

By Peter Attard Montalto of Nomura

The Hungarian central bank has on Thursday embarked on a risky strategy of postmodern policy in a bid to boost growth through lending via the provision of liquidity. It is labelled as a “Funding for Growth Scheme”.

So will it work? And longer term, what does it mean for the forint? 

Hungary’s central bank cut its benchmark rate on Tuesday by 25 basis points to 5.5 per cent, in its sixth monthly cut in a row, amid concern about the recession-hit economy.

The bank acted despite recent weakness in the forint, which has this week touched the psychologically-important level of HUF300 to the euro for the first time since last June. Andras Simor, the governor whose term ends in March, has been under persistent government pressure to do more to simulate growth. 

Yet more gloom and doom for Hungary: retail sales in November were down 4.1 per cent from a year earlier. The forint lost ground, trading at Ft297.95 to the euro at 1.30pm, after opening the day at Ft295.20.

The latest data means 11-month retail sales for last year are down by 2 per cent on 2011, with food, drink and tabacco down 0.6 per cent, and non-food retail down 3 per cent, the Hungarian Central Statistics Office reported. Even more tellingly, sales in November at furniture and electrical goods stores slumped 16.2 per cent. 

The Hungarian central bank trimmed 25 basis points off the base rate on Tuesday, the fifth such easing in as many months.

The move, which leaves the benchmark rate at 5.75 per cent, raised a chorus of concerns among analysts that the dove-dominated monetary council could be heading towards a cut too far. This particularly given the forint’s weakening in the previous 24 hours, when – spurred by worries over who might take over at the central bank next spring – it lost roughly two per cent, slipped at one point on Tuesday morning to Ft290 to the euro. 

Hungary’s central bank has cut interest rates by another 25 basis points to 5.75 per cent. This is the fifth cut in a row since August, despite the weakening forint.