No sterilisation rate cut in August, for the first time since April 2023

HUNGARY - In Brief 27 Aug 2024 by Istvan Racz

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The Monetary Council held the MNB base rate at 6.75% at today's regular monthly rate-setting meeting: This was largely as expected: the majority of analysts, including us, predicted this outcome. However, the expectation of no rate change this month was not unanimous, as some analysts predicted a 25 bps rate reduction. This may explain any, probably very moderate, positive impact on the forint. Regarding the future, the MNB appear to have become a bit more cautious than they were last month. In his usual post-meeting public appearance, Mr. Virág still presented the Bank's late-June forecast for the monthly rundown of inflation and core inflation in the rest of 2024, this time in the following form: In his presentation, he failed to reiterate the Bank's earlier forecast that one or two further rate cuts of 25bps at one time appears to be on the cards for the rest of this year. However, asked specifically about this, he responded by confirming this very same outlook, adding that on currently available information, two rate cuts of this size appears to be more likely than just one over this period. For further periods (beyond end-2024), he categorically refrained from giving any specific guidance as to likely number and size of rate actions. He said that at the next rate setting meeting on September 24, when the Q3 inflation report will be discussed as well, the following four key factors will be looked at for the purposes of the rate decision: (1) inflation data for August, (2) actions by major central banks, (3) markets' momentary risk assessment of  Hungary, and (4) confidence at domestic businesses and households. As for (4) above, we have not heard any specific defin...