MNB base rate down 75 bps today, to end 2023 at 10.75%

HUNGARY - In Brief 19 Dec 2023 by Istvan Racz

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The Monetary Council held its last regular monthly rate-setting meeting today, this time also discussing the Q4 inflation report. The decision was a 75 bps cut of the base rate and the interest rate corridor alike, the same way as it happened in the previous two months: After the meeting, vice governor Virág appeared in public with a presentation and answering questions, as usual. He said the Council today discussed a 75 bps and a 100 bps rate-cutting option, and the decision to do 75 bps was unanimous. I.e. they did not consider any deceleration of the rate-cutting procedure at this point. The MNB expects the headline inflation rate around 6% yoy in December (our current figure is 5.8% yoy). They also expect the disinflation process to speed forward in Q1 2024, in terms of the yoy headline rate, and to slow down thereafter. Their current forecast is that the headline rate will return to the target level - by which they mean 4% at this point - only in 2025. For GDP, their weekly tracker (approximating non-agricultural GDP's yoy volume growth) shows stable 2% expansion throughout Q4 so far, but no further acceleration from its values recorded in September. The Bank has also scaled back its expectations regarding GDP growth to 3% for 2024, and for 2025, they are currently forecasting 4% growth. For the current moderate speed of the recovery, and also for 2024, they expect relatively slow growth in external markets, and also only gradual recovery of consumer demand domestically. (This also sounds very realistic, our GDP growth figure for 2024 is 2.4%.) On the likely further path of the base rate, Mr. Virág said that the positive real interest rate will stay for a longer w...