Hungary central banker talks about rate cut requirements
Barnabás Virág, a member of the rate-setting Monetary Council, stressed that the MNB is interested in a stable foreign exchange market environment and that its primary goal is to achieve a more decisive reduction in inflation as soon as possible.
To achieve this, a positive real interest rate environment is needed, and thus a cut in the 13% base rate (which has no relevance for the money market) is not on the table for the time being.
He noted that risk perceptions on Hungarian assets have clearly improved, but a sustained improvement is needed and will be a primary consideration for the Monetary Council when it decides on the timing of the reduction of the 18% interest of the one-day deposit facility.
The MNB kept the 18% rate on hold at the end of April, but slashed the upper end of the interest rate corridor around the 13% base rate significantly by 450 basis points to 20.5%, and already stressed that a sustained improvement in risk sentiment was important for the start of the actual rate cut cycle.
Since then, the forint has remained stable at a relatively strong level against the euro at around 373-375, and has strengthened further below 372 on Virág's remaks. This may be due to the fact that the Deputy Governor has once again suggested caution on kicking off rate cuts, i.e. he stressed the need for a sustained improvement in Hungary's risk perception, so the interest rate environment, which remains exceptionally high in the region for the time being, continues to support the strength of the forint through carry trade transactions.
Cover photo: Portfolio
