The interest rates in Hungary were kept on hold, as expected. The monetary council also discussed a 25 bps cut, but an overwhelming majority preferred stable rates. The bank does not rule out second-round inflation effect of the persistently elevated inflation, that is why it monitors closely earnings and the underlying inflation. Moreover, according to Governor Simor it is more uncertain whether the inflation target can be achieved next year, when the economy can start expanding.
Once again, Simor repeated that reaching the IMF/EU deal as soon as possible is important. He does not see new developments in talks with the international institutions. He added that the delay in securing the credit deal means higher debt service costs; the difference is HUF 75-100bn per quarter. The start of negotiations does not mean quick completion of the deal, Simor warned.
The MNB sounded slightly hawkish at the May meeting. However, the Hungarian rates are already quite high, the inflation is elevated mostly due to temporary factors and the Hungarian assets are currently not under big pressure. Therefore, we do not see the rhetoric as an indication of a rate hike. On the other hand, it supports our view that in the near future a rate cut is unlikely to come either. Another reason is the IMF/EU deal issue that is still dragging on.