MNI NBH Review - July 2024: Improving Risk Profile Allows Another Cut

Executive summary:

• The National Bank of Hungary cut its base rate by 25bps to 6.75%, a decision which was in-line with expectations of the majority of analysts – albeit some were expecting no change to rates.
• The central bank stated that an improvement in Hungary’s risk profile facilitated the rate cut, while forward guidance was left unchanged.
• The outlook for monetary policy beyond this month remains uncertain, though Deputy Governor Virag said expectations of 1-2 more cuts by year-end are realistic.

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

MNINBHRevJul24.pdf

The NBH noted that “the incipient recovery in Hungarian economic growth, historically high foreign exchange reserves, the persistent current account surplus, the Government’s deficit reduction measures and a cautious approach to monetary policy” all contributed to the improvement in Hungary’s risk profile, thereby facilitating the 25bp easing move.

In his post-decision press conference, Deputy Governor Virag said expectations of 1-2 more rate cuts by year-end are realistic, and that “the latest inflation data, which is better than market expectations, does not change the expected inflation path, but in addition to the strengthening of the country's risk perception, it allowed earlier implementation of the interest rate cut.”

Going forward, HUF dynamics are likely to remain a significant determinant on whether the central bank can deliver further rate cuts. Global risk events such as the US Presidential election also cloud the outlook, while the scale of repricing effects in the summer months add to uncertainty over the path of disinflation.