MNI NBH Review: April 2023 - Symbolic First Step of Easing

Executive summary:

• The NBH kept the base rate and effective rate unchanged at 13% and 18% respectively, in-line with sell-side consensus.
• The O/N collateralised loan rate was cut by 450bps to 20.5% in what is the first signal of monetary policy easing.
• Nevertheless, the NBH struck a cautious and disciplined tone in its policy statement.

See the full MNI Preview including sell-side analyst views here:

MNINBHRevApr23.pdf

Hungary’s decision to hold the base rate at 13% and the effective rate at 18% was in-line with sell-side consensus. As per guidance from NBH Deputy Governor Virag, the upper rate of the Bank’s interest rate corridor was cut from 25% to 20.5% in the first signal of monetary policy easing – albeit a symbolic first step. Sell-side estimates of the cut to the upper rate ranged from 100bps to 700bps, and most analysts now expect easing of the effective rate to begin in May.

The NBH often distinguish between price risk and market risk in their policy statements. In his post-decision presser, Deputy Governor Virag said that cuts to the base rate are not on the agenda at all and the persistence of risks to inflation explains this decision. But it was noted that external risk perceptions have significantly improved in recent months, and that leads most sell-side analysts to believe that a cut to the effective rate of 18% (which has been used as the instrument to address market risk) is on the cards in May.