Hungary’s national bank expected to cut quick deposit rate today, forint may start to fall – UPDATED

Today can mark an important milestone for the Hungarian forint and the country’s economy. The national bank may decide about relaxing its strict monetary policies. As a result, the 18 percent high quick deposit rate can be reduced by May. However, such decisions affect the exchange rate of the forint significantly.

According to Világgazdaság, Hungary’s Monetary Council will decide about the country’s new monetary policies today by 2 PM. However, this time there is more at stake: Barnabás Virág, the deputy head of the national bank, said in an interview that they might take a step towards normalisation.

Last October, the downfall of the forint and market turbulences demanded decisive intervention. As a result, they introduced unique interest rate levels in Europe, starting with the quick deposit, which is currently at 18 percent. Furthermore, they raised the interest rate corridor to 25 percent. Thanks to that, the exchange rate of the forint normalised and from a historic high of around 435/EUR, it returned to 370-370/EUR today.

What will the national bank’s next move be?

The national bank waited until the inflation in Hungary began to drop and the panic over the American and Swiss bankruptcies eased. But now, they deem the right time has come to modify their strict monetary policies and decrease interest rates.

Now the market expects the national bank to reduce the upper end of the interest rate corridor by 200 base points. Following that, they believe that the central bank will decrease the quick deposit, too. Világgazdaság highlighted that modifying the upper end of the interest rate corridor does not mean a monetary loosening, just a step towards normalisation. After that, an interest rate cutback scheme may follow.

Here is the decision

The Monetary Council of the National Bank of Hungary (NBH) decided to cut the central bank’s O/N collateralised loan rate by 450 basis points to 20.50 percent at a monthly policy meeting on Tuesday. HERE are the details.