Oil prices still not enough to ease Hungary’s Central Bank policy

Hungary will need more than just reinvigorated efforts from other European countries and Asian region to convince their central bank to resume its easing cycle, as even decreasing price of oil hasn’t affected its overall economy and lending policy.

Goldman Sachs Group Inc. along with Bank of America Corp. have suggested that the country’s policy makers will need to resort to defying market expectations for lower rates and keep borrowing to thwart deflationary pressures.

“The oil price shock should prove transitory, especially against solid domestic demand,” said Goldman Sachs’ economist Magdalena Polan. “The threshold to outright rate cuts is still high.”

The price of oil and gas worldwide is still unstable, as the issue of oversupply is still being discussed by OPEC and other oil producing capitals across the world. Oversupply of crude was caused by the drop of oil prices in recent months, and the lift on Iran’s sanctions which is the newest importer of crude in Hungary.

Although Hungary is still in a favourable place, the country has the second lowest petrol prices in Europe, next to Ukraine and seventh lowest price in gas and eleventh in oil. GKI Energy Research Ltd. said that prices will most likely stay at within the 315-317 HUF range for gas and 296-298 HUF for oil prices.

Despite the oversupply, mining of natural gas in the Middle East continues, as industrial petrol solutions are still operating in the area particularly in West Qurna, Iraq. Projects related to maintaining and repairing downstream gas treatment plants are some of the ongoing processes that prove oil and gas remain strong amidst their current price and supply predicaments.

However, many countries are still experiencing economic loss, not only the major oil producing nations, but also those whose revenue solely rely on natural energy.

Currently, Hungary’s economy is picking up which is stopping inflation from accelerating, as benchmark interest rates have a slow reduction pace from its record-low of 1.35%.

However, even with price cut on natural gases, the nation’s central bank said that it will retain its policy on lending money to businesses of up to two years. The organization said that they will use other ways to ease the policy by fine-tuning rates on overnight loans and deposits, and encouraging interest-rate swaps to help cut yields.

“Our baseline sees policy rate steady given limited effect of reductions at this level and the preference to have a stable rate profile in the coming years,” said Mai Doan, an economist at Bank of America. “Banks may need to be incentivized in different ways to increase lending to businesses.”

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Source: Daily News Hungary