Tomorrow's Monetary Council: Cautious optimism, no measure likely

HUNGARY - In Brief 26 Aug 2019 by Istvan Racz
The August rate-setting meeting of the Monetary Council is scheduled for tomorrow. Essentially, there are no analysts on the market who would expect any change of the base rate for now or indeed for the rest of 2019. Actually, no interest rate measure of any kind is expected for the rest of the year currently. We fully agree with this view.There seems to be broad consensus on the market that in recent months the MNB has gathered a reasonable amount of courage and optimism to put any serious monetary tightening on hold, in view of the weakening trend of the Euro Area and the latest policy shift by major central banks towards a loser policy stance, in addition to the most recent moderate fall by core inflation. From the inflation point of view, the MNB will likely be able to maintain its current optimism until the publication of the November CPI data, when at least the headline rate will most probably shoot up and go possibly above 4% temporarily on a fuel-price-related base effect temporarily until the early spring months of 2020. But even then, adjusted core inflation may stay safely within the MNB's tolerance range.Daily BUBOR ratesSource: MNBOne important thing to know is that the recent large additions to the MNB's FX swap stock (by HUF299bn so far in August, to HUF2003bn as of today) did not lead to any significant increase in the banking sector's excess liquidity. The latter rose by HUF60bn to HUF319bn only, as there were autonomous liquidity effects, as the MNB call them, taking place over the same period, and the Bank added extra liquidity mostly to compensate the impact of the latter. In fact, the O/N BUBOR rate rose by 10bps to 0.25% between end-July and Augus...

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