Analysts expect the sterilisation rate to rise to 0.9% tomorrow

HUNGARY - In Brief 21 Jun 2021 by Istvan Racz

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The much-awaited June rate-setting meeting, when the Monetary Council is set discuss the quarterly inflation report as well, is due tomorrow. Analysts, including us, expect both the 1-week deposit rate and the base rate to go 0.9%, from 0.75% and 0.6% respectively. In effective terms, this would mean a 15 bps rate hike, of course.A small minority of analysts expects that only the base rate will be raised, to match the existing level of the 1-week depo rate. But that would be in conflict with the vice governor's (the one responsible for monetary policy) earlier statements, which were made with great emphasis in recent weeks. An even smaller minority expects a bigger increase of the 1-week deposit rate, also expecting the Council to change interest rates only once in a quarter later on, a possibility that one council member, speaking in his own name, proposed last week. But the majority, including us, believes that it would not make much sense for the Council to voluntarily limit its own freedom to change interest rates at any time by setting up a quarterly revision rule.In recent weeks, the market has reacted to the MNB's tightening talk to a significant extent, but the rate hike now expected by analysts have been priced in only partially, in terms of both interest rates and the EURHUF exchange rate. It is simply a basic credibility issue for the MNB to deliver on its rather clear-cut promises to carry out an effective rate hike tomorrow. By the way, the last time when the MNB raised the base rate, at that time also the effective sterilisation rate, was December 2011, really long time ago. So investors still need to get some track record to make them genuinely trust wha...