The Monetary Council sent out an expressly hawkish message today

HUNGARY - In Brief 28 Jan 2025 by Istvan Racz

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Just as expected, the Council took no action regarding the MNB 6.5% base rate at today's regular monthly rate-setting meeting. So, analysts, who uniformly expected a hold decision this time, have been vindicated. Until this point, this is no really interesting story, but the messages sent out by the Council are still important, in our view.On this occasion, the only possible decision the Council discussed was to hold the base rate. They did not discuss a possible rate cut at all, and there was a unanimous vote supporting the hold decision. This was a difference from the previous two rate-setting meetings, when Mr. Patai voted for a 25 bps rate cut, even though he was the only member to do so then.In their assessment, the Council essentially saw risks increasing in the negative direction. Energy prices have risen and the forint weakened recently, inflation surprised on the upside in December. Global financial markets have become increasingly unpredictable, and emerging markets are expected to face serious headwind in the coming period, in the form of investors' decreasing risk appetite. The latter will likely be negatively affected by the prospective divergence of FED and ECB interest rates. All this runs counter to a recent significant improvement by Hungary's budget and BOP balances, and to the improving prospects of domestic GDP growth.In view of increasing risks, the Council changed their summary message, omitting their previous talk of pausing interest rate cuts potentially for a longer while, speaking instead about the need to maintain tight monetary conditions for a longer while.In one actual measure, reference was made by the fact that from December 20, 2024, th...