MNB rate-cutting accelerated, but only temporarily

HUNGARY - In Brief 27 Feb 2024 by Istvan Racz

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The Monetary Council reduced the base rate by 100 ps, to 9%, today, accelerating the monthly pace of rate cuts from the previously standard 75 bps. However, shortly after the meeting, vice governor Virág said that this acceleration was only temporary, and the MNB's expectation regarding the mid-2024 level of the base rate did not change. On the latter, he word-by-word repeated his statement of January 30, that the market appeared to see the base rate at 6-7% in June, and the MNB thought that this was a realistic expectation. On inflation, he also made a pretty well hedged remark: he said that the January data pushed the short-term path of the headline rate down by 0.5%-point compared to previous expectations, but it will be the task of the Q1 inflation report (due in late March) to give an updated view on how inflation will likely behave in Q2. At this moment, the MNB does not expect any turnaround by the year-on-year headline rate at any time this year, he suggested. Instead, this rate will likely move on close to the top end of the Bank's 2-4% tolerance band during the forthcoming months. In the rest of his presentation, Mr. Virág focussed his efforts on proving that the existing high real interest rate has not led to a critically scarce financing situation at domestic companies, despite repeated claims by some high-level representatives of non-financial enterprises. Mr. Virág did not disclose today's exact voting result in the Council (this will be available in two weeks, as usual). But he said that there was a split vote again, just as in January, the MNB management uniformly voting in favour of a 100 bps cut, whereas some of the other members supported a 75 bps ra...