MNI NBH Review: February 2023 - Holding Steady as Inflation Peaks

Executive Summary:

• The NBH kept the key rate unchanged at 13.0%, in-line with unanimous sell-side consensus.
• Rates are described as being “adequate” to manage fundamental inflation risks, and the NBH see the current base rate being maintained “over a prolonged period”.
• Optional reserves that banks place will now be remunerated at the effective policy rate (18%) instead of the base rate (13%), incentivising banks to place excess liquidity with their reserve accounts at the central bank.

MNINBHRevFeb23.pdf

Hungary’s decision to hold the key rate at 13.0% and the effective rate at 18% was in-line with unanimous consensus. The press statement cited an improvement in investor sentiment and strengthened expectations that inflation will turnaround in the coming months, having begun to peak in January. Nevertheless, rates are described as being “adequate” to manage fundamental inflation risks with the NBH seeing the current base rate being maintained “over a prolonged period”, making for a relatively hawkish statement.

The NBH also restructured interest rates on required reserves, having raise the required reserve ratio to 10% in its January meeting. Now, optional reserves that banks place will be remunerated at the effective policy rate (18%) instead of the base rate (13%), incentivising banks to place excess liquidity with their reserve accounts at the central bank, a change which is expected to soak up liquidity and tighten financial conditions further.