First time since late November: no rate hike at today's 1-week deposit tender

HUNGARY - In Brief 06 Jan 2022 by Istvan Racz
The 1-week deposit rate, which currently plays the role of the effective sterilisation rate, remained unchanged at 4% at today's tender.This is very telling. In late November, when the sterilisation rate was separated from the base rate again, the MNB said that its decisions to set the 1-week depo rate would be made dependent on the momentary market situation. It was immediately clear that 'market situation' must refer mainly to the EURHUF exchange rate. On the latter, the MNB has no formal view, policy or target, but it is believed to have some informal preference at all times, which can be guessed by the market from the Bank's actions at any given time.For a while, we have been suspecting that the Bank would be satisfied with an EURHUF 360 rate in very short term, and today's decision points exactly in that direction. The forint has appreciated a lot, by about ten units against the euro since end-December, and is now at the 360 line (even though it started trading a bit weaker than that today). And there was no rate hike today, which is unlikely to be a coincidence.This also reinforces the view that there is no preset schedule for weekly increases of the sterilisation rate. So one needs to watch the EURHUF exchange rate on each occasion, even though there may be more behind any rate decision than just the exchange rate.For the next rate-setting meeting on January 25, we expect a significant hike of the base rate (currently at 2.4%), to keep pace with the sterilisation rate to an extent, but it would be too early to say how big that hike is likely to be.

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