Hungary’s central bank (NBH) has lowered its key policy rate to a new all-time low of 4.75% on Tuesday. The market was expecting this 25-basis-point rate reduction, and some analysts in London thought a 0.5 percentage point cut was also on the cards. The Monetary Council, however, insisted on its “usual" easing pace.
This was the ninth monthly policy meeting in a row when the MPC cut its base rate. The 4.75% benchmark rate is a new record low, but it is no surprise - the market was certain that a 25-bp easing will be delivered today.
There was practically no reason why the rate cut cycle started in August 2012 should have been suspended now. The inflation path lies extremely deep, economic activity remains feeble - despite a few favourable monthly readings - and the international environment remains supportive. The only reason why the MPC may need to be more cautious is the forint exchange rate, although rate-setters were unfazed in this respect a month ago when EUR/HUF was well above 300 and Hungary’s CDS spread has also dropped.
We will most likely find the above arguments in the MPC’s official statement due for release at 15:00 CET. The Council is also expected to emphasise that further monetary easing could follow if the medium-term inflation pressure remains subdued and the financial market environment remains supportive.
As new NBH Governor György Matolcsy cancelled the post-meeting press conferences, there is a host of things we will not learn today. Firstly, the Governor will not make any indication to the proposals discussed and the voting ratios, which we will learn about only from the minutes of today’s meeting to be published a few weeks from today. It will be only then when we’ll know when any of the rate-setters supported an on-hold decision and how many of them wanted to step up the pace of easing.
As last month the NBH announced several unconventional policy steps, Matolcsy would probably have had to answer a barrage of questions by journalists today, as a lot of details are not yet clear. Those interested, however, will have to scrutinise the MPC statement for any possible comment on plans to transfer 2-week NBH bills to 2w deposits and a restriction of certain credit institutions to the 2w facility and also on how exactly the central bank wants to reduce its losses.
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