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MNI NBH Review: May 2023 - Step Up in Easing

Executive summary:

  • The decision to hold the base rate at 13% and cut the effective rate 100bps to 17% was in-line with the majority of estimates from sell-side analysts.
  • The upper rate of the Bank’s interest rate corridor was also cut a further 100bps – from 20.5% to 19.5%.
  • Most analysts now expect regular cuts of the effective rate in subsequent meetings in order to normalise the 1-day deposit rate to the base rate - so long as market conditions remain stable.

See the full MNI Review including a summary of sell-side analyst views here:

MNINBHRevMay23.pdf

In its policy statement, the NBH said that persistent improvements in domestic and global risk sentiment allowed its easing process to continue. Globally, concerns of a US banking crisis seem to have abated while the correction in energy prices was noted once again. Domestically, “there has been a sustained and significant improvement in domestic financial market stability”, the statement says, with a notable mention to the “trend-like improvement” in the current account, which turned from deficit to surplus in March, as well as the decline in pace of inflation and inflation expectations.

Nevertheless, both the policy statement and NBH Governor Gyorgy Matolcsy’s post-rate presser struck hawkish tones by reiterating that the future path of the policy rate is dependent on financial stability, and that a cautious and gradual approach will continue to be adopted.

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