MNI NBH Review - August 2023: Convergence in Sight

Executive Summary:

• The NBH kept the base rate unchanged at 13% but delivered another 100bp cut to the one-day deposit rate, taking it to 14% and requiring just one more additional cut before rate convergence is complete.
• Deputy Governor Virag said in his post-decision presser that policy must be simplified going forward.
• He also said some market expectations of monetary policy beyond September are “excessive”.

See our full review, including a summary of sell-side analyst views, here:

MNINBHRevAug23.pdf

In its accompanying press statement, the NBH reiterated that the current level of the base rate is adequate to manage fundamental risks, and that if risk sentiment continues to improve, further cuts to the deposit rate can be made such that it converges to the base rate in September. Inflation is expected to fall to single-digits by end-2023 – though remain above target – meaning real interest rates will soon move to positive territory and further support disinflation. The NBH nevertheless highlighted the declining global risk appetite and volatile oil and European gas prices, stressing that a cautious and gradual approach is needed to restore price stability.

In his post-decision presser, Deputy Governor Virag said that the central bank plans to simplify its monetary-policy toolkit once rates are normalised in September and added that investors shouldn’t assume that rate cuts will automatically continue at the same pace after that. Decisions will instead be made in a data-driven manner considering risks to inflation and market stability, and as such, the upcoming inflation print on September 08 will be of particular market interest.