By Sandor Peto
BUDAPEST (Reuters) - Hungary's central bank (NBH) is expected to hold interest rates at record lows on Tuesday, but there is a chance it could send a signal about future tightening against a backdrop of robust economic growth and rising inflation.
All 15 analysts in a Reuters poll taken from Nov. 8-15 said the bank would keep both its 0.9 percent base rate
The country's economy is expanding faster than expected, with GDP holding steady at 4.8 percent in the third quarter. Annual inflation rose to 3.8 percent in October, putting it close to the top of the NBH's 2-4 percent target range.
The NBH's base rate is unlikely to change before 2020, the poll found. But the bank might tighten conditions before then, by reducing the liquidity it provides to banks through its currency swap facility, or raising its overnight deposit rate.
The analysts believe any policy change is likely to come at a meeting where the bank discusses its quarterly inflation report. The next one is due in December.
The median forecasts in the poll see Hungary's benchmark 3-month BUBOR interbank rate rising gradually to 0.7 percent over the coming 12 months from Thursday's 0.14 percent.
The analysts expect the overnight deposit rate to rise to zero by the end of next year. By the end of 2020 it is seen rising to 0.3 percent, and the base rate to 1.5 percent.
"If core CPI reaches the target significantly earlier than the NBH sees now (mid-2019), I could imagine a rate hike affecting the base rate in late 2019," said Peter Virovacz, analyst of ING in Budapest.
If it tightens market liquidity, triggering a rise in interbank rates, the NBH may steal a march on the European Central Bank, closely watched in Central Europe and not projected to start raising rates until after the summer of 2019.
Elsewhere in the region, the Czech and Romanian central banks have already increased rates well above Hungarian levels which also lag the 1.5 percent main rate in Poland, where inflation - at 1.8 percent in October - is two percentage points lower.
The risk for the NBH is a sharp weakening of the forint (EURHUF=), which would tend to fuel inflation, if investors get worried that the bank is lagging too far behind its peers, analysts said.
"The pace of the NBH's tightening will depend on the forint," said Gergely Forian-Szabo, fund manager of Amundi in Budapest.
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