MNI MNB WATCH: 100BP Cut Ups Pace Of Hungarian Easing
Hungary;s central bank picks up pace of cuts amid domestic growth concerns, but global factors add to near-term uncertainty.
The National Bank of Hungary increased its pace of rate cuts from 75 basis points to 100bp on Tuesday, taking the base rate to 9% as the economy slows.
Stronger than expected disinflationary forces and a “balanced” outlook for Hungary’s GDP growth mean inflation should return to the 3% target rate sustainably in 2025, the bank said in a statement.
External and domestic demand pressures remain low, while weak European economic activity continues to hold back domestic exports. Yet improvement is expected over the course of 2024, with a gradual recovery in domestic demand as real wages rise.
DOWNSIDE RISKS
"The short-term economic outlook is still exposed to downside risks, which is further exacerbated by the generally tense geopolitical situation," the Bank said, adding that it would take a data-dependent and gradual approach to keep interest rates at positive real levels. (See MNI POLICY: Hungary CenBank Set To Cut 100BP As Growth Falters)
Market expectations for rates are “realistic,” the Bank said in an accompanying document. Investors expect the base rate to end the year at 6-7%.
Consumer prices fell 1.7% in January to 3.8%, bringing inflation within the Bank’s tolerance band, while core inflation dipped 1.5 percentage points to 6.1% in annual terms.
Underlying inflation will continue to moderate, the bank said, but headline inflation will be pushed somewhat higher by increases in fuel duty and an overall temporary rise towards the middle of the year due to base effects.
Hungary’s current account balance and risk perception also improved, the MNB statement said, helped by an inflow of EU funds which boosted net lending and the central bank’s foreign exchange reserves.