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MNI NBH Preview - October 2023: Cautious Stance Warranted

Executive summary:

  • Having completed the process of rate convergence with a 100bp cut to the one-day deposit rate last month, the NBH are likely to moderate the pace of its easing cycle at this meeting given heightened market uncertainty surrounding Israel-Palestine matters.
  • While benign inflation developments may facilitate the continued fast pace of easing, the volatile geopolitical situation and HUF sensitivity to global factors will likely incline the NBH to act with a greater degree of caution instead.
  • Among sell-side, expectations are unanimous that the scale of rate cut be reduced at this meeting. Of the views we have previewed in this document, most are expecting a 75bp cut to the base rate.

See our full preview of the decision, including a summary of sell-side analyst views, here:


Since the September decision, inflation data has continued to show favourable developments. Headline inflation fell by over 4ppt from +16.4% y/y in August to +12.2% in September, while core inflation fell to +13.1% y/y from +15.2% the month prior. Central bank Governor Gyorgy Matolcsy as well as various government officials have said they expect inflation to drop to single-digits by December at the latest, indicating that real rates will be contractionary through year-end.

Despite these benign developments, central bank officials will be concerned by the heightened uncertainty amid the ongoing Israel-Palestine crisis. While HUF has so far remained resilient to the risk-off tone in global markets, the rise in long-end yields in core markets poses downside risks to the local currency. As a result, another 100bp cut is unlikely at this juncture given that the NBH have repeatedly stressed that “a cautious approach to monetary policy is warranted” – with the NBH having previously noted that “volatility in international investor sentiment” and risks to financial stability specifically warrant a cautious stance.

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