Hungary: MNB delivers smaller rate cut in April
At its 23 April meeting, the Monetary Council of the Hungarian National Bank (MNB) reduced its base rate to 7.75% from 8.25%, a smaller cut than March’s 75 basis point reduction. Moreover, the Bank lowered the overnight collateralized lending rate to 8.75% from 9.25% and the overnight deposit rate to 6.75% from 7.25%, therefore maintaining the symmetry of the interest rate corridor.
The Bank cut rates less aggressively than at its previous meeting, as, even though inflation continued to fall in March, a volatile risk environment called for a cautious monetary policy strategy. Headline inflation dropped to 3.6% in March from 3.7% in February, remaining within the Central Bank’s 2.0–4.0% target range; moreover, core inflation slowed to 4.4% in March from the previous month’s 5.1%. Going forward, the Bank expects core inflation to fluctuate between 4.5 and 5.0% during the remainder of this year.
Looking ahead, the MNB stated that “the outlook for inflation warrants further reduction in the base rate at a slower pace than earlier” and reiterated that future decisions will depend on macroeconomic data, inflation and the risk environment. Our panelists expect the Bank to cut rates further by the end of this year. A weaker-than-expected forint amid flare-ups in government disputes with the EU is an upside risk to interest rates. The next monetary policy meeting is scheduled for 21 May.
Commenting on the monetary policy decision, ING’s Peter Virovacz and Dávid Szonyi stated:
“We view the outcome as a clear case of the Monetary Council delivering on its promise not to surprise markets. In our view, the slowdown is clearly the result of the inflation outlook (mainly its changing structure), while recent volatility and instability in market sentiment mainly stemming from global drivers warrants patient decision-making going forward.”