Hungary central bank expected to pause after 15 consecutive cuts
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Analysts expect pause in easing cyle that started in May 2023
11 out of 15 analysts polled expect base rate to stay at 6.75%
reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/cb-polls?s=GCR01+46+D&st=Menu+G+C poll data
By Boldizsar Gyori
BUDAPEST, Aug 23 (Reuters) -Hungary's central bank is expected to pause its easing cycle on Tuesday after 15 consecutive rate cuts, keeping its base rate at 6.75%, a Reuters poll showed.
Eleven out of 15 economists surveyed expected the European Union's highest benchmark rate to stay on hold on Aug 27, with the bank's easing policy taking a breather, and four expected the bank will opt for a 25 bps cut.
Last month analysts were almost evenly split between a cut and a first pause, but the National Bank of Hungary (NBH) went on to cut its base rate by 25 bps to 6.75% on July 23, continuing an easing policy that began in May 2023 with rate cuts now totalling 1,125 basis points.
"With weaker growth but higher-than-expected inflation, we think the NBH will keep its policy rate unchanged at 6.75%," Morgan Stanley said in a note.
Hungarian headline inflation HUCPIY=ECI rose to an annual 4.1% in July from 3.7% in June, with core inflation HUCPIC=ECI also accelerating to 4.7% from 4.1%.
Headline inflation peaked at 25% in early 2023.
Economists see very limited scope for further cuts, projecting the base rate at 6.5% at the end of the year, implying just one or two rate cuts over the second half.
"We continue to see the next and only 25bp rate cut for the rest of the year materializing in October. Still, we think risks remain skewed to the NBH delivering an additional 25bp cut in September," Morgan Stanley added.
Despite the last call being unanimous, some members of the policy council strongly argued for a pause in July.
This makes upcoming meetings a matter of no change or very small reductions, Central Bank Deputy Governor Barnabas Virag said following July's rate cut, underpinning analysts' expectations of an upcoming pause.
Hungary's central bank had to introduce emergency hikes to prevent further falls for the forint in October 2022, hiking its effective policy rate to 18%.
That contained the forint EURHUF= which returned to trade below the psychological level of 400 to the euro.
In 2024 however it has been the worst performing currency in central Europe, losing 2.5% of its value to the common currency.
It has weakened since July's cut, sending the currency close to 400 versus the euro.
Reporting by Boldizsar Gyori in Budapest, Editing by William Maclean
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