In line with the market’s call, the National Bank of Hungary (MNB) has not changed its key policy rate, and the bank’s Monetary Council has also left the interest rate corridor unchanged at its monthly policy meeting on Tuesday. The base rate remains 0.9%, the overnight deposit rate is -0.15% and the O/N lending rate is on hold at 0.9%. The MPC’s statement to be published at 3 P.M. today deserves our attention. In view of the remarks made by Deputy Governor Márton Nagy a fortnight ago, the MPC may send a clearer message than in December about the timing of the next monetary tightening measure that would be the first in more than seven years.
At the same time, there is a wide-scale agreement on the market that the central bank will not be able to put off much longer the decision to tighten monetary conditions. Most of the respondents in the survey believe the ‘big decision’ could be made in March (at the earliest), as by then the MPC will have the latest quarterly Report on Inflation to lean on, by which it could pave the way for the turnaround in monetary policy.
Most analysts think that the first tightening move could be a reduction of FX swaps (which allow the MNB to manage forint liquidity in the banking system), and some of them the withdrawal of liquidity from markets could go hand in hand with changing (raising) the O/N deposit rate.
MNB Deputy Governor Márton Nagy practically acknowledged on 16 January that inflation has reached (or will reach very shortly) the central bank’s target, and consequently monetary tightening was around the corner.
This message is likely to be delivered and reaffirmed by the MPC’s official statement to be released at 3 P.M. today, but we should examine the wording closely, as it could offer key guidance as to the timing of the first monetary tightening step. The forint could also take centre stage, so we might want to keep an eye on the EUR/HUF exchange rate too.
Charting is displayed using TradingView's technology, a platform, where you can build advanced charts,
spot upcoming trends in the stock screener, and find inspiration in multiple trading ideas
