MNI NBH Review - November 2022: EU Funding Takes Primacy Over Rates

Executive Summary:

• The NBH kept rates unchanged at 13.0% once again as Deputy Governor Virag highlighted that the central bank needs to see a “significant improvement” in risk sentiment before reducing the spread between the base rate and the effective rate.
• Since there has been no marked improvement in either of these criteria, no change in the monetary policy setup was expected this month, and that will likely remain the case into year-end.
• Analysts are relatively uniform in seeing no change to headline policy rates in the near-future, with most pointing toward the pre-announced tools as carrying the load for monetary policy going forward.

MNI NBH Review - November 2022.pdf

In the post-decision press conference, Virag flagged the suitability of 13% base rates to achieve their medium-term inflation view, with CPI seen edging lower from their forecast of 13.5 – 14.5% for 2022. Virag also struck a somewhat positive tone for Hungary’s current account balance, stating that Hungary is “likely over the worst for the current account shortfall”.

Latest source reports in FAZ suggest that the European Union finance ministers could keep cohesion fund payments frozen, with Hungary failing to meet the judicial reform and anti-corruption criteria – as flagged in the European Parliament last week. The report suggested that EU are looking to tie together both funding lines from the cohesion funds (E7.5bln) as well as from the yet-to-be-approved COVID recovery fund (as much as E5.8bln).