The Hungarian National Bank’s Monetary Council (MNB) has lowered the base rate by 50 basis points (bps) to 7.75% in line with forecasts.

This is a reduction from the 75 basis points of easing in the previous meeting. 

The voting at the meeting was unanimous, according to MNB deputy governor Barnabas Virag, setting a hawkish tone.

Policymakers indicated that domestic disinflation was robust and widespread. Nonetheless, the unpredictable risk environment and growing risk aversion still call for a prudent stance on monetary policy.

The central bank anticipates a temporary uptick in inflation in the middle of the year, driven by the retrospective pricing of market services and base effects. Core inflation is projected to vary between 4.5% and 5% in the second half of the year.

The deputy governor stressed the necessity of a tight monetary policy to meet the MNB's inflation target by 2025. 

He added that if services inflation, which is a general trend in the global economy, remains high, achieving the target will require lower imported inflation.

The MNB forecast average inflation for 2024 to range between 3.5% and 5%, which is expected to decrease to 2.5-3.5% in 2025, falling below its 3% target.

Furthermore, the market anticipates the base rate to decrease to 6.75% by June, which could be accomplished with two 50 basis point rate cuts, but there's no need to rush, Virag added.

The statement also said that within the new phase of monetary policy, the MNB will make decisions on any further cuts in a data-driven way.

Additionally, Virag commented that after June, MNB's policy actions will be determined by the money market environment and incoming data. However, he noted that as inflation is expected to rise temporarily in the middle of the year, there might be limited room for further easing.

Analysts at MBH Bank believe that the MNB's target of 6.75% by June is achievable, but they anticipate policymakers to halt further rate cuts after that. The bank projects the base rate to decrease to 6.25% by the end of the year.


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