Analysts proved right, the base rate was reduced by 25bps today

HUNGARY - In Brief 23 Jul 2024 by Istvan Racz

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The base rate went to 6.75%, in conformity with analysts' pre-meeting near-consensus, which we reported about last night (in CEST terms). At the usual post-meeting 'background conversation' (roughly the same as a press conference), Mr. Virág said that at today's meeting, the two options discussed were holding the rate or cutting it by 25bps. In the end, the vote was unanimous, even though some members of the Council brought up strong arguments in favour of a hold decision. Just as the MNB said previously, Mr. Virág stressed that in the new period of decision-making which started with this meeting, the same two options will be discussed by the Council each month, and the decision will be made based on momentary conditions and circumstances. He also said that there was little change in the conditions relevant for the rate decision since June, except that (a) a smaller than expected headline inflation rate was reported for June (but he noted that yoy core inflation actually rose a bit; and (b) prospects for FED and ECB rate cuts improved recently. He noted a recent decrease of risk premia, including the improvement regarding European assets after the French parliamentary election. In Mr. Virág's presentation, the following, pretty valuable chart included the MNB's monthly forecasts for CPI-inflation: In this chart, blue is core inflation and red is the headline inflation rate. Clearly, the MNB expects rising inflation in H2 2024, followed by rapid price stabilisation in H1 2025. Importantly, stressing again that the end-2024 base rate could be at 6.25-6.5% means that the Bank still wants to keep its sterilisation rate significantly real-positive in the rest of 2024. On 20...