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Hungary Monetary Policy March 2024

Hungary: MNB delivers smaller rate cut in March

At its 26 March meeting, the Monetary Council of the Hungarian National Bank (MNB) slashed its base rate to 8.25% from 9.00%, a smaller cut than February’s 100 basis point reduction. Moreover, the Bank lowered the overnight collateralized lending rate to 9.25% from 10.00% and the overnight deposit rate to 7.25% from 8.00%.

The Bank cut rates less aggressively than in its previous meeting as, even though inflation continued to fall in February amid subdued external and domestic demand pressures, the risk premium on the country’s assets had risen recently. Headline inflation dropped to 3.7% in February from 3.8% in January, remaining within the Central Bank’s 2.0–4.0% target range; moreover, core inflation slowed to 5.1% in February from the previous month’s 6.1%. Going forward, the Bank expects inflation to average between 3.5–5.0% this year and between 2.5-3.5% in 2025 and 2026.

Looking ahead, the MNB stated that “decisions on any further reductions in the base rate and their optimal pace will be made on the basis of […] information” 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 resurging government disputes with the EU is an upside risk to interest rates. The next monetary policy meeting is scheduled for 23 April.

Commenting on the monetary policy outlook, János Nagy, analyst at Erste Bank, stated:

“At the end of H1 the policy rate could be between 6.5-7.0 percent as [Vice Governor] Virág revealed in line with our expectations which indicates the pace of cuts to be slowed to 50 bps from April onwards. However, after June resurging inflation figures due to awakening domestic demand and the unfavorable base effect could leave the policy rate unchanged for months.”

Meanwhile, ING’s analysts commented:

“This new and narrower playing field (the 6.50-7.00% range for the policy rate by end-June) is still in line with our base case of a 6.50% policy rate after the June rate-setting meeting. To get there, however, we need to factor in another 75bp cut in April before the slowdown to 50bp. In our view, it is far too early to call the April move, so – at this stage – we leave our call unchanged, but raise the possibility of a 50bp move if warranted by incoming macroeconomic data and market stability issues.”

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