The MNB is under friendly fire: rating agencies appear to be worried

HUNGARY - In Brief 28 Nov 2023 by Istvan Racz

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A few days ago, we wrote in our monthly report that the government may step up supporting the MNB's strong forint policy towards end-2023, because of its desire to present a materially decreasing debt ratio. But so far, actual events do not seem to support our forecast. The MNB has received critical comments for its policy to maintain a substantially real-positive base rate, including some sharply critical ones, from a government commissioner (a rank below secretaries of state) at the economic ministry, from the head of the Hungarian Chamber of Commerce and Industry and the leader of VOSZ, a representative organisation of entrepreneurs.  For sure, only one of these speakers represents the government, and even he is only a third-tier figure at the top of his ministry. But even so, such remarks from a high-ranking official from the institution where the government's economic policy is formulated is naturally taken as government pressure put on the central bank. Reuters has just reported about comments from Fitch Ratings and S&P, two agencies that are scheduled to review their Hungarian sovereign ratings in the first half of December, both expressing concerns about the credibility of central bank policy in Hungary (and Poland), because of government pressure demanding lower interest rates. The critics mentioned above argue that high central bank interest rates are unnecessarily holding back domestic demand, especially fixed investment by enterprises. The MNB responded to them in a brief staff paper three days ago, defending its policy by stressing the importance of a real-positive base rate, because of continued concerns about inflation prospects. In our view, the current...