This is how Hungary's central bank cuts the Gordian knot
The Monetary Council has held its monthly policy meeting today, when it decided to cut the base rate by 50 basis points to 12.5%. Thus, after last month's merger of the base rate and the benchmark (one-day deposit) rate, the central bank continues easing at half the previous pace of 100 basis points at the previous five rate-setting meetings.
According to analysts polled by Portfolio, everything between a 100bp cut and an on-hold decision was on the cards today, but the outcome is not exactly what the majority projected (-50bps), so it's a moderate surprise. The central bank's main considerations in making this call were to maintain a positive real interest rate outlook and the international environment. The MNB has repeatedly stressed the need for a positive real interest rate in recent months, with inflation falling below the last known benchmark rate for the first time in more than seven years in September.
With the 12.2% yr/yr CPI in September and the base rate at 13%, there would have been room for a cut of up to 80 basis points today if the central bank had stuck to its positive retrospective real interest rate. In addition, the international market tensions of recent weeks, notably the rise in U.S. bond yields and the escalation of geopolitical conflicts in Israel, may have prompted caution.
As usual, a statement on the key considerations behind the decision will be published by the MNB at 3 p.m., and Deputy Governor Barnabás Virág will start a background discussion at the same time.
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