Economy 26 February 2019, 2:00pm

Hungary central bank delivers rate decision

Portfolio

In line with the market’s call, the Monetary Council of Hungary’s central bank (MNB) has not changed interest rates at its monthly policy meeting on Tuesday. The rate-setters have not even modified the interest rate corridor thus the base rate remains 0.9%, the overnight deposit rate -0.15% and the overnight lending rate 0.9%. Most of the analysts polled by Portfolio expect the first announcement about the start of monetary tightening to be made in March, which would put an end to an over seven-year period. In light of the approaching turnaround we should keep a close eye on the wording of the MPC’s statement to be released at 3 P.M. today, to see whether the Council will make a more direct hint at the upcoming tightening.

Analysts polled by Portfolio did not expect today’s meeting to mark the start of monetary tightening therefore the on hold decision is no surprise.

Yet, most of the analysts agree that the MNB cannot put off much longer the ‘big decision’, and some kind of announcement in this respect can be expected to be made in March. Today’s policy meeting starts the clock of the ‘final countdown’ to the big monetary policy turnaround. The adjective ‘big’ is justified for the last time the MNB tightened monetary conditions was in December 2011, and it has been loosening conditions practically ever since - either via conventional or by unconventional tools.According to the consensus forecast, the first move will be the reduction of FX swaps providing forint liquidity. The views differ, however, as to how rapidly the MNB will raise the extremes of the interest rate corridor, i.e. the O/N deposit and O/N lending rates this year. Most of the analysts in Portfolio’s survey project a moderate raise to these, while stressing that changes to the 0.9% base rate is most unlikely in 2019.

The Monetary Council’s official statement to be released at 3 P.M. is the exciting part of today’s policy meeting. We should keep a close eye on its wording to see whether the Council will make any more direct indication of the upcoming tightening, particularly in view of the fact that inflation reached a critical level, according to CPI data published a fortnight ago.

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