Commerzbank’s Tatha Ghose reports that Hungary’s MNB has started an easing cycle with a 25 bp cut to 6.25%, justified by improved inflation dynamics and stable markets. He expects another 25 bp cut next month, arguing that disinflation allows easing without necessarily compressing real rates or undermining the Forint, though elections may add volatility.

Disinflation allows gradual MNB easing

"Hungary’s National Bank (MNB) delivered its first rate cut of the cycle yesterday, lowering the base rate and corridor by 25bp to 6.25%."

"At the press conference, Governor Mihaly Varga stressed that MNB is not committed to a rate-cut cycle (yet), saying decisions will be taken on a meeting-by-meeting basis in a “cautious and data-driven manner”."

"In other words, despite token words of caution, we expect underlying disinflationary forces to prevail."

"It is therefore likely that MNB will cut its base rate by 25bp once again next month."

"Since the rate is being cut in response to an improvement in the inflation outlook, these cuts will not necessarily imply a narrower real interest rate, nor pressure on the exchange rate."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)