Analysts expect the MNB repo rate to be cut to 20% tomorrow

HUNGARY - In Brief 24 Apr 2023 by Istvan Racz

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Tomorrow's monthly rate-setting meeting will be formally a regular one, as to its place in the Monetary Council's preset meeting calendar, but it will be an extraordinary one in terms of importance. The latter is because it has been promised to give away some information regarding the much-awaited turn of the MNB's policy cycle. Following Mr. Virág's announcement a few days ago, Portfolio.hu's analyst poll of this morning expected a repo rate cut to 20% from 25%, with the 18% sterilisation rate, the effective marginal price of HUF liquidity left unchanged, as promised by the vice governor in the said statement. Here, the unknown variable is the amount by which the Council will cut the repo rate, which is the ceiling of the Bank's interest rate corridor. The expectation of a reduction to 20% appears to us a safe bet, as in this case, the MNB would still keep some dry gunpowder in reserve, in terms of leaving some space for an upward move by the sterilisation rate, which is determined on a daily basis, in case something happens that would require such a step to take place. Making a smaller step than this would just look like a super-cautious move, heavily devaluating Mr. Virág's announcement, whereas reducing the repo rate to 18% could be seen as a strong signal that the Council has excluded any further need to raise the sterilisation rate and wants to focus on downward adjustments only from this point onwards. In its current policy concept, the MNB has said it sees the EURHUF exchange rate as the primary transmission channel for its policies. So, any change in MNB interest rates should mean a change in the Bank's preference regarding the level of EURHUF. In this regard,...