Base rate cut in line with analyst expectations

HUNGARY - In Brief 26 Mar 2024 by Istvan Racz
The Monetary Council reduced the base rate by 75bps to 8.25% at today's meeting, just as expected by private sector analysts. This means that the 100bps rate cut of late February indeed proved to be a temporary (more accurately a one-time) deviation from the previous four months' standard monthly pace, as hinted by the MNB right after that decision. The Council also discussed the Q1 inflation report, as scheduled. The report will be published on Thursday, but its main points, together with the Council's conclusions were presented by Mr. Virág after the meeting, once again as usual. Here is a summary of the main messages Mr. Virág shared with the public on this occasion: - Today's rate decision was based on a unanimous vote.- The period of rapid monthly rate cuts is over. The pace of rate cuts will slow down in Q2.- For end-June, the Council expects the base rate at 6.5-7% (previously 6-7%). For end-2024, Mr. Virág declined to be specific, saying that the end of H1 is the furthest that can be called with sufficient certainty.- The MNB is going to continue the operation of its FX swap and discount bill facilities.- For 2024, the MNB expects 3.5-5% (previously 4-5%) average CPI-inflation.- For the next two months, the headline inflation rate is likely to stay around the tolerance ceiling (4%). Then from May, it is likely to rise temporarily, mainly on negative base effects.- Core inflation is likely to stay outside (above) the target range throughout 2024.- The structure of inflation has changed: it is especially resistant in the area of market (not administratively regulated) services. This needs extra caution from the MNB. - They expect inflation (the headline rate) to ...

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