May 20, 2020 / 3:35 PM / a month ago

Hungary central bank to leave rates steady after QE slashes long yields: Reuters poll

FILE PHOTO: A view of the entrance to the National Bank of Hungary building in Budapest,Hungary February 9, 2016. REUTERS/Laszlo Balogh/File Photo

BUDAPEST (Reuters) - The National Bank of Hungary (NBH) will leave key interest rates unchanged next Tuesday, economists said in a Reuters poll, after government bond purchases launched this month sent longer yields plunging.

All 16 economists in the May 18-20 survey said the bank would leave its base rate HUINT=ECI at 0.9%. Twelve analysts also gave a forecast for the overnight deposit rate HUODPO=ECI, saying it would remain at -0.05%.

An overwhelming majority of analysts said the bank would not change the interest rate on its one-week deposit facility over the coming month from the current 0.9%, a tool the bank uses to tackle any excessive market volatility.

Hungarian 10-year yields have fallen by 50 basis points since the NBH launched bond purchases in early May, while the forint EURHUF=D3 is trading around one-week highs of 350 per euro as central Europe’s economies gradually emerge from months-long lockdowns triggered by the coronavirus pandemic.

“We think the (NBH) will continue its policy approach of adjusting short-term rates and liquidity management tools to maintain the exchange rate and financial stability, while simultaneously easing long-term liquidity and credit conditions,” economists at Goldman Sachs said in a note.

Analysts expect the economy to shrink by 4.6% this year, much worse than the government’s recently downgraded forecast of a 3% downturn, while the budget deficit is seen widening to 4.5% of economic output, also above the government’s target.

The poll sees no change in either the base rate or the overnight deposit rate through to the end of next year.

However, some economists said the bank might lower the interest rate on its one-week deposit facility later this year if the forint remains stable and the scale of damage to the economy from the pandemic gets clearer.

Reporting by Gergely Szakacs; Editing by Alison Williams

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