Rate Decision - MNB Decides “Small Scale, Mild Tightening”

The MNB has decided today to leave unchanged its main interest rates at its regular interest rate setting meeting. The decision is broadly in line with expectations and the indication of the central bank. Yet, the decision is considered to be mildly hawkish – in the wording of the central bank deputy governor – as the central bank decided to aim a somewhat tighter interbank liquidity position in the coming quarter: they reduced the liquidity aimed to crowd out from the interbank market from HUF 300-500 billion in Q2 to HUF 200-400 billion. The MNB has stressed the uncertain nature of conditions surrounding the monetary policy environment: the slowing, but still vivid domestic economic activity and the slowing international business cycle. As so diverse conditions prevail, the central bank remains in data-dependent mode, Márton Nagy, deputy governor stressed. He went even further as he underlined H2 data that could help the central bank decide about future actions. In our translation, monetary policy would thus remain dormant until Q4. Such a decision might be favorable also in the political context, as we have pointed out to the importance of the local municipal elections to be held in autumn. The MNB sees the current set of economic policies as supportive of a balanced growth: cautious fiscal and monetary policies supplemented with an elevated interest rate paid on local household debt instruments (MÁP Plusz). While the MNB foresees inflation to drop steeply during the summer months (due primarily to fuel prices), they forecast the core inflation net of taxes to start decelerating only towards the end of the year. Because of the stability in inflation expectations, they believe that the second-round effects from a series of excise duty increases on tobacco products could be negligible. The brand new inflation report of the central bank raises the inflation outlook from the previous quarter’s for 2020 and 2021 to 3.4% and 3.3%, respectively. Also, economic growth could be higher than earlier thought as the export sector keeps contributing to a stable external balance and an economic growth of 4.3% this year (up from 3.8%) and 3.3% in 2020 and 2021 (the latter up by 0.3pps). We assess that the central bank is trying to balance between domestic inflationary factors and an easy monetary policy by major central banks. The focus on the core indicators and their developments will keep the central bank from turning back to dovish mode, while a growing pressure could eventually lead to further – more meaningful – tightening in December. Hai Thanh Le Phuong, CFA Head of Research CONCORDE SECURITIES LTD. Hillside 55-61 Alkotás street, H-1123 Budapest. Phone: | Fax: | Mobil: | MEMBER OF THE CONCORDE GROUP This message and its attachments contain confidential information, and their disclosure is restricted by law and the relevant regulations. If you are not the intended recipient, it may be forbidden and illegal to disclose, copy, distribute or use the information in this message. If you are not the intended recipient, please notify the sender immediately and delete this message and its attachments. If you are a client of Concorde Securities Ltd., the standpoints and suggestions described in the message should be interpreted in accordance with the relevant parts of the agreement in effect between us.