MNB Might Accelerate the Pace of Interest Rate Cuts

"On the basis of the information currently available, there is an equal number of arguments in favor of cutting interest rates by 75 basis points or 100 basis points at the end-January policy meeting," Deputy Governor of the National Bank of Hungary (MNB), Barnabás Virág said at a Euromoney conference in Vienna.

The Deputy Governor sent a message, Reuters reported, that the central bank could accelerate the pace of monthly rate cuts, having cut by 75 basis points in recent months. Virág also said that even if this acceleration happens, it could only be for a temporary period of one, two or three months.

On the time frame for an acceleration to a 100-basis-point cut, he said, "I think it's too early to judge because it depends on the data."

Speaking to reporters at the Euromoney conference, Barnabás Virág said Hungarian inflation data in December had underperformed the central bank's own forecast and showed that "broad and persistent" disinflation was unfolding. He said inflation could come "very close" to the upper end of the bank's 2-4% target range in the spring months, adding that inflation in Hungary was in line with levels elsewhere in central Europe.

The central bank deputy governor also said it was realistic to assume that the current market pricing could see the MNB base rate fall to 6-7% by mid-year from the current 10.75%. Indeed, current forward rate expectations (FRAs) are pricing the 3-month BUBOR into this range for the summer period, as there has been a steady and significant fall in FRAs in recent weeks.

On the Hungarian base rate easing to around 6-7% by the summer, he predicted that "we will maintain a positive interest rate environment and guarantee an appropriate spread relative to developed markets, which together will ensure that disinflation continues."