An update to yesterday's forecast report - the MNB spoke again

HUNGARY - In Brief 16 Jul 2024 by Istvan Racz

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Just as we were releasing our fresh forecast report yesterday, reports came in that the MNB spoke again, by Mr. Virág, the usual public face of the Monetary Council, appearing at a conference. He said that inflation (= the headline rate of CPI inflation) is more likely to be closer to 4% than 5% (both in yoy terms, of course) in December, but core inflation may rise in the forthcoming months, because of rapid wage growth and the now typical backward-looking repricing practice. Previously, the MNB said they expected core inflation at 5% yoy in December, and as the reader will recall, core inflation was 0.4%-point higher than the headline rate in May, the latest available actual monthly dataset. In our new report, we are predicting 4.7% yoy headline inflation for December. More importantly, he also said that two or three rate cuts of 25 bps in H2 2024 appear to be realistic (we predicted two cuts of the same size in the report). However, whether or not there will be a rate cut in July (actually at next Tuesday's monthly rate-setting meeting) remains an 'entirely open' question. In our own translation, they have not decided yet, how to distribute those two or three rate cuts among the six monthly rate-setting meetings of H2. Momentary circumstances will be important at the time of any rate decision, of course. In our view the current EURHUF 392 exchange rate could be found appropriately strong from the forint's point of view to allow a rate cut next week. But the Monetary Council may want an even stronger forint, which the BOP's current problem-free state would most certainly allow.