Central Bank slows monetary policy loosening pace in June

At its meeting on 18 June, the Magyar Nemzeti Bank (MNB) cut its base rate by 25 basis points to 7.00%, in line with market expectations. Accordingly, the MNB adjusted the lower bound of the interest rate—the O/N deposit rate—to 6.00% and the upper bound—the O/N collateralized lending rate—to 8.00%. The decision marked a deceleration in the Bank’s monetary policy loosening cycle, on the heels of May’s larger 50 basis point cut.

The Bank noted that the inflation outlook had improved over the past quarter, with May’s inflation rising only slightly to 4.0%—the midpoint of the Bank's 3.0–5.0% tolerance band. Following lower oil prices and better-than-expected inflation data, the MNB now expects inflation to average lower than previously anticipated, remaining around 3.0-4.5% this year and between 2.5-3.5% in 2025 and 2026. That said, the Bank opted for a smaller hike than in prior meetings due to the forint’s weakness against the euro, volatility in financial markets, major geopolitical conflict and upside risks to inflation.

The Bank provided no explicit forward guidance on future interest rate movements but maintained that it would adopt a careful and patient approach to monetary policy, taking into account global and domestic disinflationary risks and volatility in international investor sentiment. It stated that any further decisions on reducing the base rate would be made cautiously, based on incoming macroeconomic data and the inflation outlook. A majority of panelists have penciled in further rate cuts by end-2024, with the Consensus for the base rate to end the year about 75 basis points below June’s level. The next monetary policy meeting is scheduled for 23 July.

ING analysts Peter Virovacz and Dávid Szonyi commented on the outlook: “We still believe that the policy rate cannot go any lower after June. The central bank wants to control both the short and the long end of the curve, and the best tool to have a lasting impact on the long end is to be as hawkish as possible. In this respect, we expect a prolonged pause by the [Central Bank], which in turn would maintain a positive real interest rate in a rising inflation environment and keep some risk premium over regional rates, supporting HUF assets. Nevertheless, we see downside risks to our view, as the central bank has not completely closed the door to further easing later this year. […] If there is any room for easing, it would be in September and December, with the policy rate alternatively moving to 6.50%.”

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