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Hungary Monetary Policy February 2024

Hungary: MNB delivers steeper rate cut in February

At its 27 February meeting, the Monetary Council of the Hungarian National Bank (MNB) slashed its base rate to 9.00% from 10.00%, a larger cut than January’s 75 basis point reduction. Moreover, the Bank lowered the overnight collateralized lending rate to 10.00% from 11.00% and the overnight deposit rate to 8.00% from 9.00%.

The Bank cut rates more aggressively as inflation fell sharply in January. Headline inflation dived from 5.5% in December to 3.8% in January, moving within the Central Bank’s 2.0–4.0% target range; moreover, core inflation slowed to 6.1% in January from the previous month’s 7.6%. Looking ahead, the Bank expects inflation to remain close to the upper bound of the tolerance band in the coming months, before increasing temporarily in mid-2024 due to a low base effect. Inflation is expected to return to the Bank’s inflation target on a sustained basis in 2025.

Looking ahead, our panelists expect the Bank to cut rates further by over 300 basis points by the end of this year. A weaker-than-expected forint amid continued government disputes with the Central Bank and the EU is an upside risk to interest rates. The next monetary policy meeting is scheduled for 26 March.

Commenting on the Bank’s decision, Orsolya Nyeste, analyst at Erste Bank, stated:

“Today the MNB decided on an acceleration of interest rate cuts that the Council had probably planned already for January. Depending primarily on the formation of risk assessment, this higher pace may continue in March, as well. In 2Q24, however, we expect slowing down of the monetary easing process again, as the disinflation may come to a halt, while longer-lasting strict monetary policy of major central banks justifies cautiousness, as well.”

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