Hungary's central bank likely to keep rates on hold on Nov. 17

By Sandor Peto

BUDAPEST (Reuters) - Hungary's central bank is expected to leave interest rates unchanged at its meeting on Nov. 17 as risks to local markets from global monetary policy trends remain balanced between slowdown and expansion.

In a Nov 10-12 Reuters poll, all 24 analysts forecast that the bank would keep the main interest rate at it record-low 1.35 percent. The consensus forecast was for the rate to remain unchanged at least until the end of next year, then rise to 2 percent by the end of 2017.

Deputy Governor Marton Nagy has said the central bank may hold its base rate at 1.35 percent until 2018 or even 2019. His view has not had much effect on market forecasts for rate increases, which are unchanged from last month.

"I see symmetric risks. The central bank is strongly committed to maintain loose monetary conditions and inflation allows that," said Gergely Szabo Forian of Pioneer Investments.

A possible Federal Reserve rate increase in December could make emerging market assets less attractive. That effect may be offset by expectations the European Central Bank will further loosen euro zone monetary policy.

Inflation is low across Central Europe, and some central banks in the region could continue to cut rates or otherwise relax monetary policy to prevent a slowdown in economic growth.

Some analysts said the Hungarian bank had made it clear that it could ease policy further by using other tools than interest rates, including lending incentives to commercial banks and squeezing out funds from its deposit facilities.

It also indicated that it would not mind a weaker forint .

In a separate poll last week, analysts predicted the forint would weaken to 315 against the euro by November next year from around 312 now.

By contrast, Poland's robust economic growth led the same poll to forecast a stronger zloty, even though the Polish central bank is expected to cut rates next week.

The forint could get support from Hungary's current account surplus, upgrades in its credit ratings to investment grade and Central Europe's economic stability. If it strengthens beyond 300 to the euro, the Hungarian central bank would be more likely to cut rates, analysts said.

The analysts in the new poll projected annual inflation would pick up to 2.8 percent by the end of 2017 from around zero now. Economic growth will slow to 2.4 percent next year from about 2.9 percent this year, they predicted.

Some analysts still think the central bank may lower interest rates further to keep output growing. It may even reduce its overnight deposit rate, now at 0.1 percent, below zero, Bank of America analysts said in a note dated Oct. 29.

(Additional reporting by Gergely Szakacs, editing by Larry King)

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