Bloomberg News

Hungary Will Probably Increase Main Rate in 2014, Szazadveg Says

June 19, 2013

Hungary’s central bank, which has cut the main interest rate in each of the past 10 months, will probably be forced to raise it next year, according to Szazadveg, a think tank that advises the government on policy.

The Magyar Nemzeti Bank may reduce the two-week deposit rate to as low as 3.5 percent in the next three to four months, from the current record-low 4.5 percent, before being forced to raise it to about 5 percent in 2014, Budapest-based Szazadveg said yesterday in an e-mailed report.

Speculation that the U.S. Federal Reserve may reduce its stimulus has prompted declines in emerging-market assets and narrowed the room of central banks there for monetary easing. Inflation near a 39-year low and an economy emerging from a recession last year are “consistent with a lower central bank rate,” Magyar Nemzeti Bank policy makers said, according to the minutes of their May 28 meeting.

“The era of cheap money may be at an end,” Szazadveg said in its report, citing rising yields on 10-year U.S. and Japanese government bonds and Fed Chairman Ben S. Bernanke’s May 22 statement that the Fed “could” scale back its debt purchases if it was confident in “sustainable improvement” in the U.S. employment outlook. “We consider that as a result yields may be higher at the end of next year and the benchmark rate may return to around 5 percent,” Szazadveg said.

The yield on the 10-year Hungarian government forint bond rose to 5.94 percent today from 5.87 percent yesterday and compared with a record-low 4.93 percent on May 16.

Investors are scaling back their bets for Hungary’s scope for further monetary easing. The six-month forward-rate traded 41 basis below the Budapest interbank offered rate level today, indicating that investors expect at most a half-point cut in the rest of 2013. That compares with the 1 1/4 percentage-point reduction priced in on May 15.

The next rate-setting meeting is June 25, with all 14 economists in a Bloomberg survey predicting a quarter-point cut to 4.25 percent.

To contact the reporter on this story: Zoltan Simon in Budapest at zsimon@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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