Analysts lowered rate cut expectations ahead of tomorrow's Monetary Council meeting

HUNGARY - In Brief 23 Oct 2023 by Istvan Racz

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The regular monthly rate-setting meeting is due tomorrow. Following a five-month long series of uniform 100bps cuts, analysts now have a median expectation of only 50bps for the monthly reduction of the sterilisation rate, which is now the base rate. So, the rate would go to 12.5%. This is the result of Portfolio.hu's usual poll. There seems to be a bit of confusion behind this 'consensus' forecast. Actually, consensus among poll participants was lacking completely, with individual forecasts being dispersed within the 0-100bps rate cut expectation range. The confusion came in a great part from the fact that the MNB has not sent out any guiding signal over the past weeks, despite they said after the late-September meeting that they would do so. So, analysts are still trying to read the statements made on that occasion. One of the claims the MNB made then was that the sterilisation rate had become positive in real terms by then, and the MNB wanted that to remain so in the foreseeable future. Some analysts mechanically translated this to taking the 12.2% yoy CPI-inflation rate for September, to conclude that for the sterilisation rate to remain real-positive, the MNB can reduce it by 50 or 75bps at most. This argument does not appear to be correct in the formal sense. At the time of the September decision, the last known inflation number was 16.4% yoy, the headline rate for August. So even though the MNB said it was going to focus on real positivity in a backward-looking sense, they could establish that the objective had been reached only by comparing their interest rate with the September inflation figure, which became known only in early October. Following the same patt...