Today's Monetary Council: No measure this time either, just as expected

HUNGARY - In Brief 28 May 2019 by Istvan Racz

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The Monetary Council's regular monthly rate-setting meeting today has brought about to no policy change at all, just as expected. Logically so: given the MNB did not tighten policy in any material way between September 2018 and April this year, when adjusted core inflation was rising, why would have they tightened in May, when the ACI indicator shrank in yoy terms?Indeed, the Council did not even change its communiqué in any significant degree today. The statement continues not to mention any little need for monetary tightening. Moreover, it says in the single little bit of a change in the text that financial markets expect the ECB's first interest rate hike to be delayed further. The Council keep themselves to the end-March forecast, according to which adjusted core inflation will likely rise until this fall and will start to decrease from that point onwards.As a result, the market should most probably wait until late June, when the Council is likely to make the next real review of its monetary policy, just as it was promised by them in late March. On that occasion, they are more likely than not to carry out / announce a further small tightening step, similar to the one carried out in March. (Should they not do that, the forint's exchange rate could suffer, creating unwanted additional inflationary pressure.) The actual impact on money market rates will likely be just a bit bigger than it was in late March (essentially nothing on that occasion), as the impact of the two steps may accumulate.