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2020/04/09 / Erste Group Research

Crisis to hit the economy and changed somewhat monetary policy approach

Following annual GDP growth of 4.9% in 2019, we have reduced our forecast for this year's GDP growth to -4.2% y/y, due to Coronavirus crisis. Fast spread of Covid 19 strongly burdens global economies and prospects of exports have worsened. Moreover, contribution of domestic demand to GDP growth could also slip into negative territory, mainly due to the expected drop of employment. After its January peak of 4.7% y/y, inflation is set to decline below the 3% target of the MNB from April. Earlier upside risks have practically disappeared, due to the ongoing economic shock.

The MNB changed its monetary policy toolkit, as a result of the crisis. As the forint depreciated against major currencies sharply, the MNB has made it clear that they do not tolerate further weakening and extreme volatility of the exchange rate. Thus at the shorter-end of the curve, rate environment was tightened. In the new framework, short-term rates could be subject to larger fluctuations, while the EURHUF might stabilize. On the other hand, following recent volatility, long-term bond yields are to be kept under control, as the MNB provides liquidity for banks via its collateralized unlimited fixed-rate loans and starts bond-buying soon.

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General information

AuthorErste Group Research
Product nameCEE Country Macro Outlook
Topic in focusFX, Macro/ Fixed income
Economy in focusHungary
Currency in focusHungarian Forint
Sector in focus-


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