Hungary: MNB rate cut seems unlikely this year – UOB

Antje Praefcke, currency analyst at Commerzbank, assesses the outlook for the Central Bank’s (MNB) monetary policy for the remainder of the year.

Key points

On the other hand, the Hungarian central bank (MNB) has no room to cut key rates in the near future. Also in Hungary the inflation rate fell more than expected in September, from the previous 16.4% to 12.2%, so that real interest rates have even become positive, since the official interest rate is already one day by 13%, but the drop is mainly due to base effects, while food and services prices have continued to rise.

The MNB is aware of the pressure on prices, which is also reflected in the monthly variation rates, which remain at 0.4%, which is why it has adopted a more cautious approach after having lowered the rate in several stages to a day up to the level of the key type. More recently, MNB members have been increasingly restrictive, so key rate cuts appear unlikely until the end of the year.

This is 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 its demand for commercial banks to set a ceiling on mortgage rates . If the MNB did not cope with inflation and government pressure, the market would punish the forint significantly, with the risk that the MNB would continue to put pressure on prices.