Tatha Ghose from Commerzbank reports that the Hungarian MNB started the cycle of easing monetary policy by reducing interest rates by 25 basis points to 6.25%, justified by the improvement in inflation dynamics and market stability. He expects another 25-basis-point cut next month, arguing that disinflation allows monetary policy to be eased without compressing real interest rates or weakening the forint, although elections could raise volatility.

Disinflation enables a gradual easing of the MNB’s monetary policy

“The National Bank of Hungary (MNB) yesterday made the first interest rate cut of this cycle, lowering the base rate and corridor by 25 basis points to 6.25%.”

“At a press conference, Governor Mihaly Varga emphasized that the MNB is not (yet) committed to a rate cut cycle, saying decisions will be made on a meeting-by-meeting basis in a “careful and data-driven manner.””

“In other words, despite token words of caution, we expect underlying disinflationary forces to prevail.”

“It is therefore likely that MNB will cut the base rate again by 25 basis points next month.”

“As rates are lowered in response to improving inflation prospects, these reductions will not necessarily represent a narrowing of the real interest rate or pressure on the exchange rate.”

(This article was created with the support of an artificial intelligence tool and has been reviewed by an editor.)