No action from today's Monetary Council, statement seems moderately hawkish

HUNGARY - In Brief 15 Dec 2020 by Istvan Racz

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The Monetary Council has kept interest rates and other policies unchanged at its regular monthly rate-setting meeting today. The statement appears moderately hawkish, saying:- the rundown of Covid and the subsequent economic recovery is full of uncertainties, which requires more caution than usual in judging pricing patterns and inflationary consequences;- risk aversion is growing regarding the market sentiment towards emerging economies; and- the MNB will maintain a difference between the base rate and the interest rate for the 1-week deposit instrument as long as justified by inflation risks.Based on this, we do not expect any change in the 1-week deposit rate on Thursday, even though we think the forint's position and the current inflation situation would allow a reduction back to 0.6%. Essentially, we think that this is because of the remaining uncertainty about the availability of EU transfers next year, which we believe to be much greater than generally thought. The market is unlikely to be surprised by today's conclusions of the Monetary Council.The Council also discussed the Q4 inflation report today, but they have given away very little at the press conference after the meeting, except that they expect GDP to fall 6-6.5% this year but grow 3.5-6% in 2021. Average CPI-inflation is expected at 3.4% this year and 3.5-3.6% in 2021. The report itself should become public within the next 48 hours.