The Monetary Council was quite ambitious today

HUNGARY - In Brief 26 Jul 2022 by Istvan Racz
The Council raised the base rate further by 100 bps, to 10.75% today, and the 1-week deposit rate will most likely follow this increase on Thursday. This looks quite ambitious: as the MNB had managed to bring the forint back to around EURHUF 400, the MNB could have scaled back the monthly rate hike to 50 bps. Analysts' median expectation was 50 bps anyway, and we shared that view. The latest reading of the headline CPI-inflation rate was 11.7% yoy in June. For July, the MNB expected a further sharp rise to 13.4% yoy in its quarterly inflation report of late June. The -2.65% negative real interest rate that can be simply calculated from this data as the difference between the base rate and yoy CPI-inflation would be a significant increase from the -4%-ish level seen in May and June. The immediate conclusion to be drawn from this action can be that the MNB indeed wants to defend the EURHUF 400 level for a while, possibly for several months (as we expect). This could push the Bank's implicit exchange rate policy back to a mildly counter-inflationary path, in our view.

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