The market wants to hear good news - so let us give them some

HUNGARY - In Brief 26 Sep 2022 by Istvan Racz

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Somehow it appears to us that the MNB has made a great deal of improvement in understanding and using psychology at recent times. This time around, it was a statement by vice governor Virág a few days ago, in which he said that among other stuff, the Monetary Council will discuss tomorrow the prospects and modalities to end the ongoing series of interest rate increases at some point later on. This was the second time in a short while that he created the impression in public that the cyclical peak of inflation is not that far away anymore, so it is just time to discuss how central bank policy should react to that through interest rates before it could get too late. And, yes it is starting to work. Already, domestic private sector analysts have begun to issue assessments that the MNB is now preparing the market for the reduction of the monthly size of interest rate hikes, which is probably a correct observation. There is even one view that the MNB may increase the base rate by the usual 100 bps tomorrow but close down the series of rate hikes with that move. The latter is thought to be an exaggeration by the majority of analysts, and most certainly correctly so. But in today's Portfolio.hu poll, analysts median expectation was a 12.75% base rate (+100 bps) tomorrow and only 13.75% by end-December. Yes, why not? The European gas market is normalising, even crude oil prices seem to have stabilised, Hungary's fiscal adjustment is proceeding well, and 'freeing up' EU funds for Hungary is also making good progress. So, Hungary's risk profile is improving, or at least so a few domestic analysts are saying. Hmmm, we are a bit skeptical about all that. The headline inflation rat...