Base rate reduced by 75bps only today

HUNGARY - In Brief 30 Jan 2024 by Istvan Racz

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At today's meeting, the Monetary Council decided to reduce the base rate to 10%, by 75 bps, despite a recent indication by the MNB that the monthly pace of rate cuts may be accelerated to 100bps this time. After the meeting, Vice Governor Virág said that the current level and direction of the CPI-inflation rate, and also the lack of domestic demand pressures would have allowed going for the bigger reduction, but the 'existing domestic risk environment', specifically the events of last week created a situation in which decision-makers thought that more caution was justified. He further specified the key reason for concern as the doubts around the prospects for the upcoming EU Council meeting on February 1. He also said that the Council will continue to conduct interest rate policy on a data-driven basis, and the acceleration of the monthly speed of rate cuts will remain on the table for the rate-setting meeting of February as well. This was exactly the reasoning we warned our Readers of in a note released yesterday: in view of the most recent weakening of the forint, and of the currency's unknown negative potential in case of a negative outcome of the upcoming EU meeting, it appeared to be wise to take a more currency-friendly approach by the MNB today. It is also a factor that oil prices are increasing, which is almost immediately translated into higher domestic fuel prices, and there has been a significant increase in the costs of sea transportation from Asia most lately, because of the current difficult situation at the Red Sea. Other than this, there was only a small change of the technique of monetary sterilisation that has been announced today: the MNB will 'suspe...