MNB Cuts Base Rate by 75 bp to 11.5%

MNB

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The Monetary Council of the National Bank of Hungary (MNB) decided to cut the central bank base rate by 75 bp to 11.5% at a monthly policy meeting on Tuesday, according to a report by state news wire MTI.

MNB deputy-governor Barnabás Virág had flagged a 75 bp cut - the same as at the policy meeting in October - days earlier.

The council also decided to lower the symmetric interest rate corridor in tandem, bringing the O/N deposit rate to 10.5% and the O/N collateralized loan rate to 12.5%.

In a statement released after the meeting, the council said "strong disinflation and the stability of the financial markets" had allowed the central bank to continue lowering the base rate. The policymakers added that external risks "continue to warrant a cautious approach".

"Risks surrounding global disinflation and volatility in international investor sentiment warrant a careful approach to monetary policy," the council said.

"The council is constantly assessing incoming macroeconomic data, the outlook for inflation and developments in the risk environment, and it will take decisions on additional changes in monetary conditions based on these factors in the coming months," the ratesetters added.

At a press conference after the meeting, Virág said the council continued to take its decisions on a "step by step" basis, in a "careful and data-driven manner", depending on factors affecting the inflation path and developments in the risk environment.

Macroeconomic developments show a "trend-like" improvement, he said, pointing to single-digit inflation in October, the continuing improvement in the external balance, and the end of the technical recession. He added that policymakers couldn't "sit back" and had to maintain a "disciplined" monetary policy to achieve price stability.

He revealed that council members had also discussed options to cut the base rate by 50 bp and by 100 bp at the meeting, but had unanimously decided on the 75 bp reduction.

Virág acknowledged a further rise in real interest rates as disinflation accelerated and said positive real interest rates supported the further decline in inflation.

He said the base rate could fall under 11% by year-end and could reach the single digits by February 2024.

Addressing the macroeconomic outlook, he said inflation could be "around 7%" at year-end, adding that short-term repricing patterns showed a similar picture to the period before 2020.

He said high-frequency data suggested economic output would improve further toward the end of the year after Q3 GDP rose by 0.9% quarter-on-quarter.

The current account balance, which was in surplus again in September, could improve "even more than previously expected", he added.

He said risk appetite had improved since the last monthly policy meeting, but added that global uncertainty was increasing in parallel with rising geopolitical tensions and international risks, warranting a "cautious approach".

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