Monetary Council next Tuesday, and the ban on grain imports from Ukraine

HUNGARY - In Brief 22 Sep 2023 by Istvan Racz

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This month's rate-setting meeting is set for Tuesday (September 26). The general expectation is another 100bps cut of the O/N deposit rate, to 13%, given that CPI-inflation is predicted to fall below 13% this month, and so one of the MNB's objectives, to reach a positive real interest rate, will likely be achieved even this way. By this step, the base rate, unchanged at 13% for a year now, would become the effective sterilisation rate again. Last month, the MNB said that when the unification of the O/N deposit rate and the base rate happens, they will most likely carry out a revision of the Bank's existing policy instruments, to simplify the existing structure. They added that discount bills and reverse FX swaps would be kept in operation, meaning that the revision would most likely affect the O/N deposit and the long-term deposit facilities. The Council may decide on this occasion that holding daily deposit auctions is not needed anymore, and then the main sterilisation instrument would be something else. It will be also interesting to see how the MNB modifies its view on prospective inflation for Q4 and beyond, given its quarterly inflation report will also be discussed on this occasion. Any signal emitted on the likely further course of monetary easing will be interesting. We expect the Council to keep the door open for going on with its regular monthly 100bps rate cuts for the rest of this year, but also for a reduction of the pace of cuts if rising energy prices, currency instability or any other factor makes it necessary. Just briefly on the extension of the Polish, Hungarian and Slovakian ban on the imports of certain agricultural goods from Ukraine, after the t...