The Monetary council of the National Bank of Hungary cut the base rate, paid on the 2W central bank deposit, by 50 bps to 9.75%, in line with our expectations. Rate cut was mostly anticipated, although some analysts were looking for only 25 bps. The only remaining regular meeting this year was not suitable as it was scheduled just before the Christmas. The bank also narrowed the spread within the O/N deposit and the O/N repo rate by 100 bps. Since today, the O/N deposit rate will be 150 bps below the base rate while the O/N repo will be 150 bps above the base rate. Thus, the O/N was left unchanged at 8.25% while the O/N repo was cut by 100 bps to 11.25%. The bank proved that it does not hesitate to cut rates when there is any room to do so. In the statement from the meeting, the explanation was barely surprising: the bank cited the feasibility of achieving its inflationary targets, the low domestic and external inflationary pressures, the stabilization of forint and the recent positive development of the external balance. If the inflation continues to fall further from 7.3% expected for November, we may expect further cuts next year.
(Jakub Dvorak, CSOB)