Hungary 10-Year Bond Yield (%, eop)

MNB stands pat in February

At its 28 February meeting, the Monetary Council of the Hungarian National Bank (MNB) left its base rate unchanged at 13.00% for the fourth consecutive meeting. Moreover, the Bank left the overnight deposit rate and the overnight collateralized lending rate unchanged at 12.50% and 25.00%, respectively.

The Bank reiterated that it would keep interest rates stable for a prolonged period. It expects that former hikes resulting in current tight financing conditions will contribute to anchoring inflation expectations. This, together with cooling international price pressures, weakening domestic demand and a fading base effect, should bring inflation within the Bank’s target range of 3.0% plus or minus one percentage point in 2024. That said, headline inflation accelerated to 25.7% in January from 24.5% in December, moving further above the Bank’s target.

Looking ahead, the Bank sees the current rate as adequate to manage inflation risks. The MNB expects inflation to slow gradually in H1 2023 and more significantly in the second half of the year. That said, loosening the stance is not currently on the table; the Bank reiterated that it would keep monetary conditions tight until “inflation expectations are anchored and the inflation target is achieved in a sustainable manner”.

Commenting on the release, Peter Virovacz, economist at ING, stated:

“In general, the outcome of the February rate setting meeting significantly increased the probability that we won’t see any change in the monetary policy setup until the June rate setting meeting, in our view. The updated forward guidance echoes this as well as the central bank is focusing on the “persistence of the recent improvement in risk perceptions” and in our interpretation this persistence means multiple months.”

The next monetary policy meeting is scheduled for 28 March.