No interest rate measure is expected from the Monetary Council tomorrow

HUNGARY - In Brief 23 Jan 2023 by Istvan Racz

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At the first regular monthly rate-setting meeting tomorrow, analysts uniformly do not expect any interest rate step, and indeed no significant policy change of any type. What they find potentially interesting could be the Council's communication, from which the investors might try to draw conclusions as regards the likely timing of the first reduction of the currently 18% sterilisation rate, at best in vague terms, of course. In Portfolio.hu's poll, analysts' median expectation for the sterilisation rate is 10% at end-2023 and 6% at end-2024. We agree with most of the foregoing, except for the specific forecasts on the year-end levels of the sterilisation rate, which we find too aggressive. Indeed, we do not expect any rate cut in H1 2023, and our end-year forecast is 13% for 2023 and 11% for 2024. This is all in spite of the fact that we currently see the peak of CPI-inflation coming already in January 2023. This latter forecast is based on current information, of course, but what if the government decides to end the remaining administrative controls on nine basic food items in a few months' time, energy prices rise by more than expected later in the year, due to unforeseen war events or to the reopening of the Chinese economy, or maybe the pass-through from producer prices to CPI-inflation will be stronger than expected. The MNB will have to keep all this in mind, and so it would be probably way too early for them to give specific hints on the start of interest rate reduction. Later on, we see a need for the sterilisation rate to become positive in real terms, for a further material decrease of inflation to be achieved in the prospectively recovering economy of H2 th...