One Hungarian rate-setter voted for a rate cut in November

The National Bank of Hungary (MNB) has published the minutes of tis 19 November rate-setting meeting where the Monetary Council decided to keep the base rate on hold at 6.50%. The document reveals that Éva Búza, Péter Gottfried, Csaba Kandrács, Kolos Kardkovács, Zoltán Kovács, György Matolcsy, Gyula Pleschinger, and Barnabás Virág voted in favour of keeping the base rate on hold, while

Mihály Patai voted for a 25-basis-point reduction.

The Monetary Council will hold its next policy meeting on 17 December 2024. The minutes of that meeting will be published at 2 p.m. on 15 January 2025.

"Looking ahead, moderate inflation rates were expected as global economic demand remained subdued; however, the stronger price dynamics of market services still represented an inflationary effect," the minutes showed.

"Since the October interest rate decision global investor sentiment had been volatile. This had primarily been driven by geopolitical developments, expectations for the macroeconomic outlook of developed economies and for the future interest rate paths of the world’s leading central banks. Risk aversion towards emerging markets had increased in parallel with strengthening of the US dollar in the period. The Federal Reserve had reduced interest rates by 25 basis points in November.

"Over the past month, medium-term interest rate expectations for the policy rate had shifted upwards in the US, while the expected interest rate path of the European Central Bank had remained broadly unchanged. In the CEE region, the Czech central bank had reduced its policy rate by 25 basis points, and the Polish and the Romanian central banks had left interest rates unchanged at their latest rate-setting meetings."

Then the rate-setters go on to assess the domestic economic developments, pointing to Q3 GDP data showing a contraction of 0.7% (0.8% according to raw data) in annual terms.

They also discussed that inflation had risen to 3.2% and core inflation had been 4.5% in October. The rise in inflation had reflected the accelerating dynamics in food and fuel prices, which had been partly offset by moderating rises in annual services prices.

The Council continued to closely monitor pricing decisions in the services sector. Household inflation expectations were declining; however, they remained at a significantly higher level than that of past periods of price stability.

"Inflation was expected to rise temporarily in the rest of the year. Lower-than-expected inflation in October indicated lower inflation in the short term; however, exchange rate depreciation seen in past months, as well as changes to the system of excise duties were likely to have inflationary effects in the next year. Anchoring inflation expectations, preserving financial market stability and a disciplined monetary policy were crucial for the consumer price index to return to the central bank target in a sustained manner in 2025." (highlighting by Portfolio)

"Following the review of macroeconomic and financial market developments, the Monetary Council discussed the details of its monetary policy decision. In the Council members’ assessment, subdued economic activity in Europe was driven by weak industrial production, while geopolitical tensions remained key risks. Several members highlighted that a lower economic growth path was expected for the euro area next year, amid an improving economic outlook in the US and unchanged economic prospects in China relative to earlier international projections. It was pointed out that looking ahead, moderate inflation rates could be expected globally as a result of subdued global economic demand, while services disinflation was slow. Future developments in oil and gas prices, which are also decisive in terms of price dynamics, were surrounded by significant uncertainty.

"Members stressed that sentiment in international financial markets had been volatile since the latest interest rate-setting meeting, and risk aversion towards emerging markets had increased in parallel with the appreciation of the US dollar in the period. Several members took note that consequences of capital outflows affecting emerging markets’ foreign exchange market raised upside risks to inflation. In assessing international monetary policy, members pointed out that there had been an upward shift in expectations for the Federal Reserve’s interest rate path in the medium term, while the expected interest rate path from the European Central Bank had not changed significantly. In assessing developments in international financial markets,

the Council was in agreement that financial market stability remained a key factor in terms of price stability.

"Council members agreed that the easing of precaution and an improvement in consumer confidence would be key in terms of domestic growth, which required achieving price stability in a sustainable manner. Several members emphasised that following the recent wait-and-see approach, corporate lending was expected to stabilise at a higher level in 2025, in parallel with the pick-up in the economic performance and the easing of uncertainty. Regarding the household sector, some members underlined that household lending was picking up at an accelerating pace and this growth was expected to continue next year.

"Discussing domestic inflation developments, some members emphasised that the decline in prices across several sectors might indicate a correction of the profit inflation seen in recent years. Several members pointed out that despite inflation staying within the tolerance band, household inflation expectations remained at significantly higher levels than in past periods of price stability. This also supported the necessity of disciplined, stability-oriented monetary policy. In the context of the inflation outlook, members highlighted several factors acting in opposing directions and agreed that an overview of the result of their effects would be presented in the December Inflation Report. It was underlined that in addition to disciplined monetary policy, anchoring inflation expectations and preserving financial market stability were crucial to achieve the inflation target in a sustainable manner.

"Based on real economic developments, the inflation outlook and the assessment of the risk environment, members concluded that subdued economic growth in Hungary was largely fuelled by such factors as weak agricultural performance or subdued external activity which fell outside the scope of monetary policy. The inflation outlook had been shaped by factors acting in opposing directions. Supporting financial market stability was key especially in a period when risk aversion towards emerging markets was increasing.

"The Monetary Council reiterated its commitment to the achievement of the inflation target in a sustainable manner. Members were of the view that, in the current macroeconomic environment, the Bank could make the most effective contribution to the easing of economic agents’ increased precaution and to the restart of economic growth by preserving price stability and maintaining financial market stability. In accordance with this assessment, the vast majority of members was in favour of leaving the base rate unchanged at the November meeting.

Based on a different assessment of macroeconomic and financial market developments, one member voted in favour of lowering the base rate by 25 basis points.

Cover photo: Portfolio