A quick preview of the Monetary Council meeting on September 19

HUNGARY - In Brief 13 Sep 2017 by Istvan Racz

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The Monetary Council is to hold its monthly rate-setting meeting, complicated a bit by the discussion of the MNB's Q3 inflation report next Tuesday (September 19). What makes this event interesting despite the somewhat boringly stubborn stability of the Council's long-held easing bias is a set of three parallel circumstances:- the July and then the August inflation data was not particularly central-bank-friendly, the trend of core inflation points definitely upwards and the gap between the inflation target and actual core inflation has narrowed to little;- the MNB verbally intervened against the strong forint - indirectly but quite clearly - at EURHUF 303 on August 24, and continues to stress its easing bias, making repeated references on the possibility of additional loosening steps, typically non-conventional ones; and- the forint is weakening again (currently at EURHUF 308), on bad market mood internationally, some concern about Poland and Hungary because of conflicts with the EU, and on investors' (or may be just analysts') expectation that the Monetary Council might cut the O/N deposit rate to a more negative level or reduce access to the 3-month deposit facility further.Against this background, we would offer the following preview for next week's MC meeting:- The MNB will remain rather optimistic about inflation prospects, possibly leaving behind some suspicion that there might be a gap between their outlook and realities. Anyway, they will most likely maintain their previous optimistic forecast, trying to cool down inflationary expectations.- They are very likely to continue de-sterilization, through announcing a Q4 target for bank access to the 3-month deposit ...