MNI NBH Review: March 2023 - Cautiously Hawkish

Executive summary:

• The NBH kept the base rate unchanged at 13%, in-line with sell-side consensus.
• Policy statement leaned hawkish as Virag pushed back on government pressure for easier stance.
• Rates have been described as “adequate” once again, with the NBH reiterating their stance that the current base rate will be maintained “over a prolonged period".

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

MNINBHRevMar23.pdf

Hungary’s decision to hold the base rate at 13% and the effective rate at 18% was in-line with sell-side consensus. The press statement acknowledged the deterioration in investor sentiment though sought to assure market participants that the capital and liquidity position of domestic banks are stable. Rates were once again described as being “adequate” to manage fundamental inflation risks, while Deputy Governor Virag double downed on his patient approach to policy in his post-decision presser and said rate cuts are “not on the horizon”, making for a relatively hawkish statement.

While the decision to keep the base rate constant at 13% was as expected, there had been speculation among some sell-side desks that the NBH may begin to converge the overnight rate to the base rate. Instead, the NBH kept all alternate policy rates unchanged and reiterated previously offered guidance that the 18% effective rate is still needed, and that cuts to the base rate are “not on the horizon”. Against the backdrop of deteriorating market sentiment, the NBH firmly struck a cautious and disciplined tone, one which was reflected by the bullish market reaction in HUF.