MNB base rate reduced by 50bps today, in line with broad-based consensus expectation

HUNGARY - In Brief 23 Apr 2024 by Istvan Racz

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The base rate went down to 7.75% at today's regular rate-setting meeting of the Monetary Council. The monthly speed of the cut was thus reduced from March's 75bps and February's 100bps. Analyst widely expected this outcome; it was our prediction as well in the quarterly forecast report we released last week. Indeed, it was not very difficult to find out what the MNB was up to. A month ago, Mr. Virág said that the Council expected the base rate in the 6.5-7% range at end-June, and analysts quickly realised that three times 50bps (in April, May and June alike) would take the rate to 6.75% by end-June, i.e. exactly to the midpoint of the indicated range. This time around, Mr. Virág was asked after the meeting if the Council still had the same view on the end-June base rate. The answer was essentially yes, with the added comment that of course, each monthly decision will be made on the basis of momentary conditions, and so the eventual result may be different. On prospects for H2, Mr. Virág stressed the existing high degree of uncertainty, but added that for sure, the room for further rate cuts will be very limited in that period. Actually, most analysts, including us, do not expect any further rate cut in H2. The MNB still expects the average headline inflation rate at 4-5% this year, which is certainly higher than the latest (March) 3.6% yoy actual figure. As explanation, they still refer to the unfriendly base effects starting with May, and the stubbornly high inflation in the services sector (9.9% yoy in March, for 26% of the consumer basket). Mr. Virág said that the latter can be seen in many parts of the world, not just in Hungary. The local reason is that service pr...