Contrary to general expectations, the monetary council of the National Bank (MNB) decided to leave the base rate at its current level of 8.5% yesterday.
“The forint is strong, meaning that monetary conditions are strict,” MNB governor András Simor said, adding that new data did not justify further severity. “The MNB is facing the double threat of increasing global inflation and low domestic growth,” he continued.
The MNB has increased its base rate by 100 basis points over the last three months, Simor reminded. Monetary council members were split between “no change” and a 25-basis point hike, and the former won by a narrow margin, he added.
Analysts saw the worse-than-expected May inflation and April wage figures and expected that the MNB would automatically hike the rate, but monetary policy is much more complex, Simor explained.
In May market service prices increased less than usual, while food prices climbed more than average, thus a conclusion on the interrupted decreasing inflation cycle cannot be made, Simor said. Similarly, April wages at large companies slowed and increased rapidly only at small companies, which could be due to an increase in legal employment and the new minimum wage for skilled labor, he said.
Regardless of the decision of “no change”, the interest-rate hike period is not over, Budapest Alapkezelő fund manager Dániel Bebessy said. There is an incongruity between the MNB’s past decisions and the present one, which could undermine its credibility, Raiffeisen Bank analyst Zoltán Török said.
So far analysts believed the MNB was not reacting to short-term changes in the forint’s exchange rate, but now they are uncertain, Erste analyst Orsolya Nyeste commented.