MNI NBH Review - April 2024: Caution Still the Mantra

Executive Summary:

• The National Bank of Hungary cut its base rate by 50bps to 7.75%, a moderation from the 75bp and 100bp cuts delivered in March and February, respectively.
• The policy statement offered few surprises, as the NBH maintained its “cautious” tone and reiterated that rate cuts will be made in smaller steps as part of the new phase of policy.
• Deputy Governor Virag stated that the 6.50-7.00% range for the base rate by the end of June is realistic, suggesting 50bp cuts will be made in the upcoming May and June MPC meetings.

See the full review, with a summary of sell-side analyst views, here:

MNINBHRevApr24.pdf

The National Bank of Hungary confirmed that rate cuts will not reaccelerate in the near term, asserting that "in the new phase […] the Monetary Council is proceeding at a slower pace than before, and will take decisions on any further reductions in the base rate in a data-driven manner". It stated that while disinflation has generally been strong, “The pace of price increases will rise temporarily in the middle of this year due to the backward-looking pricing of market services and base effects.” Therefore, “the outlook for inflation warrants further reduction in the base rate at a slower pace than earlier.” Overall, the policy statement offered few surprises, acknowledging the progress made on inflation but nevertheless arguing for a careful and patient approach given the changed expectations on Fed policy and declining risk appetite.

In his post-decision press conference, Deputy Governor Virag confirmed that this month’s slower easing step is the first of the “new phase” of policy. Virag said the Monetary Council still views the 6.50-7.00% base rate range as the most realistic for the policy rate at the end of June (as mentioned back in March), which would be consistent with 50bp rate cuts in both May and June also, bringing the base rate to 6.75% by the end of 1H-2024.