No rate action expected from tomorrow's Monetary Council

HUNGARY - In Brief 27 Jan 2025 by Istvan Racz

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The regular monthly rate-setting meeting of the Monetary Council is scheduled for tomorrow. This will be the first one in 2025 and also the penultimate one chaired by the outgoing governor, Mr. Matolcsy.None of the twelve analysts asked by Portfolio.hu in their regular poll expect any rate action this time, as the current conditions are thought to be inappropriate for one, and also as no one would expect that the outgoing governor would stand behind a decision that predetermines the line of action his successor will be able to take after his takeover on March 4. We fully agree with this uniform analyst view, needless to say.However, this was the easy part of the story. Asked about base rate expectations for end-2025, the median analyst forecast fell between 5.75-6%, which corresponds to currently existing FRA pricing, meaning two or three 25 bps cuts this year, BUT there is no consensus at all: poll respondents predictions range from 4.75% to 6.5%, us standing at 6%, as we clarified that in last week's quarterly forecast update. Differences of view appear to be almost the same big regarding the MNB base rate at end-2026: the poll's forecast range runs from 4.25% to 5.75%, with 5% median expectation, us standing at the upper end of the range.We find it interesting that analysts appear to be more optimistic, the further they look out in time. The first base rate cut is expected by them around the end of H1 2025, exactly at the time when the government expect economic recovery to accelerate, when one would think inflationary pressures should intensify, especially if the recovery is led by consumer demand. Moreover, everyone expects the economy to be even stronger in 2026,...