Hungary: Rate cuts by the MNB appear unlikely this year – UOB

Antje Praefcke, FX Analyst at Commerzbank, assesses the central bank’s (MNB) monetary policy prospects for the remainder of the year.

Key Takeaways

The Hungarian central bank (MNB) on the other hand has no scope for key rate cuts in the near future. In Hungary too the inflation rate in September eased more significantly than expected from previously 16.4% to 12.2%, so that real interest rates have even become positive now, as key and overnight rate stand at 13%, but the fall is mainly due to base effects, whereas prices for food and services have continued to rise.

The MNB is aware of the price pressure that is also reflected in the monthly change rates of still 0.4% which is why it has taken a more cautious approach after it had lowered the overnight rate to the level of the key rate in a number of steps. More recently members of the MNB had increasingly sounded more restrictive so that key rate cuts seem unlikely until year-end.

This becomes even more significant for the forint as the government is putting increasing pressure on the central bank, as it did with its demand to change the inflation target or with its demand to commercial banks to set an upper limit for mortgage rates. If the MNB didn't stand up to inflation and government pressure, the market would punish the forint in a major way, with the MNB risking further price pressure.