MNB rate decision as expected, vice governor hinted at base rate's future path

HUNGARY - In Brief 21 Nov 2023 by Istvan Racz

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Today's rate decision was another 75 bps reduction of the base rate, which is the effective sterilisation rate again, to 11.5%. So far, no surprise at all, analysts and everyone were almost completely sure about this outcome. However, the more interesting part was what vice governor Virág said in his usual post-meeting presentation on the likely path of inflation and the base rate. He hinted that the MNB sees the headline inflation rate at 7% yoy in December, which is quite conservative in our view: on currently known conditions, it could be as low as 6% yoy only. However, the more important part was the sentence that the base rate may fall below 11% by year end and to the single-digit territory by February 2024. This clearly hints at the high likelihood of -75 bps at the December meeting, which would make much sense, in our view. But it says much less about the first two months of next year, as the base rate could become 'single-digit' with two 50 bps cuts already, at 9.75% by February. Actually, we believe that something like that seems to be the most likely scenario, if everything goes well, of course, in terms of geopolitical factors and market conditions.