The MNB said it will likely narrow the interest rate corridor next Tuesday

HUNGARY - In Brief 19 Apr 2023 by Istvan Racz

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MNB Vice governor Virág was quoted by the local press this morning as essentially giving away the decision he expects from the Monetary Council's next rate-setting meeting due next Tuesday (April 25). He said that the conditions appear to be right for the Council to narrow the Bank's interest rate corridor, meaning the reduction of the current 25% interest rate on O/N and 1-week repo credit. This decision may take place at the next rate-setting meeting, that is on April 25 (next Tuesday) already. Reducing the 18% sterilisation rate can be a subject for discussion in the Council only at a later stage. The current extremely high level of the repo rate was introduced last October, with a view to making the cost of HUF shorts unacceptably high. Consequently, cutting this rate and already Mr. Virág's statement that this decision is coming up soon, is a way for the MNB to tell that it intends to withdraw some of its support from the forint from this point onwards. Within a short while, this was the second such signal emitted by the Bank, the first being the discontinuation of its off-market sales of FX to energy importers, that is giving up a kind of regular market intervention for the forint, from April 1. Explaining the upcoming MNB decision, Mr. Virág said that the extreme risk scenarios of the domestic economy 'have been all priced out' by now. The currently very slow decrease of inflation is likely to accelerate somewhat in Q2 and speed up more substantially in the second half of this year. The picture is not completely positive, as on the one hand, energy and food price inflation is slowing down, while on the other hand, repricing is still more frequent than normal in ...