Monetary Council tomorrow, Moody's rating review on Friday

HUNGARY - In Brief 27 Feb 2023 by Istvan Racz

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The Monetary Council is set to hold its regular monthly rate-setting meeting tomorrow (February 28). There is once again broad analyst consensus, which we share, that no interest rate move is likely on this occasion. Although analysts seem to believe that CPI-inflation peaked in January, there would be a need for at least one piece of monthly inflation data to support this view as hard evidence, and that may become available only in early March. In addition, reducing the sterilisation rate would be a really major change of policy, which naturally requires a new inflation report, and the next one of that is due only in late March. On this basis, analysts currently believe that the earliest time when a, probably small and experimental, rate cut is possible will be the rate-setting meeting on March 28. However, it will be interesting to hear the MNB's post-meeting communication tomorrow: it is likely to be cautious but positive, in our view. Another notable event of this week will be the review of Moody's Baa2/Stable rating on the Hungarian sovereign on Friday (March 3). Already this year, S&P and Fitch Ratings reviewed their Hungary ratings, and the result was negative rating steps in both cases. Moody's has been traditionally the most positive of the Top-3 agencies on Hungary, but in the current situation, lowering the rating outlook from Stable to Negative would not be surprising at all. As a reminder, S&P and Fitch Ratings did not have a problem with Hungary's short-term macro prospects; indeed, their forecasts predicted improvement in the country's macro data for 2023. Instead, their criticism focussed on longer-term, strategic issues, including mainly Hungary's appa...