Hungary Is Expected to Get To Record Low Rates

Central Bank of Hungary is all set to lower its benchmark interest rate to a record low figure, according to many economists. The new President of the country, Gyorgy Matolcsy is expected to deploy unconventional measures for ending the recession in this European country. The common assumption is of cutting down the 2-week deposit rate by a quarter point to 5%, thereby easing policy for the 8th straight month. Some, though low in numbers, feel that the rate may be cut down to 4.75%. The decision will be announced at 2 PM and then the Monetary Council Statement will be released an hour later.

The spokesperson of Hungarian Central Bank, Andras Simon stated that Matolcsy has scrapped the system where customary press briefings were given following the rate decisions. Simon announced further that the Governor of Central Bank will be holding media briefings, only if some strategically important decision is undertaken.

Forint, the major currency of Hungary weakened amidst all these as economists are not very sure about the possible direction of monetary policy, after Matolcsy’s appointment. Many are not sure whether reserves will be used for economic stimulus or not. On the other hand, it is also not very clear whether the stock of foreign currency loans will get reduced or not. Agata Urbanska, who works as an economist for HSBC Bank, stated that investors are currently keeping vigilant eyes on the possibility of introduction of self-styled orthodox policies of the Governor.

Forint has declined by 4.2% against Euro in February, the biggest decline for any currency in the world, against Euro. Currently, Forint is trading at 306.65 per Euro, more or less unchanged from the last trading day. In the next 6 months, the investors are expecting the main rate of Hungary to drop to around 4.25% going by the indication of the forward rate agreements.

The new Vice President of MNB, Adam Balog stated that the Central Bank will currently go with a very cautious policy. Balog added that the current volatility experienced by Forint is not really justified by the economic fundamentals of the country. He commented further that the main priority of Central Bank is to meet the inflation goal.

Incidentally, on 12th March, the Prime Minister Viktor Orban stated that the Hungarian Government should solve foreign currency loan problem for households and small businesses.