Hungary’s central bank remains biased to ease its monetary policy further, as gradual forint depreciation is seen as net positive for growth in Hungary, London-based emerging markets economists at JP Morgan have said in a report highlighting key findings of a recent trip to Budapest. A 10% forint depreciation boosted exports by 2%, notwithstanding the 80% imported content of exports, they said. At current exchange rate levels, the boost to export competiveness outweighs negative balance sheet effects stemming from the large net open FX position of the economy, they said. However, “the authorities acknowledge that beyond a certain point, negative balance sheet effects would begin to dominate”. “We remain of the view that the [central bank’s rate setters] are likely to lower the policy rate to 2.50%… provided forint weakness does not become excessive or too volatile,”
JP Morgan’s analysts said.
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