HUF: MNB keeps policy tight - Commerzbank

The Hungarian National Bank (MNB) left its policy rate unchanged at 6.50% yesterday and issued a surprise 2pp cut to the reserve requirement ratio (RRR) from 10% to 8%. We view the policy stance as largely unchanged - the EUR/HUF exchange rate also reflected this in the aftermath of the decision, Commerzbank's FX analyst Tatha Ghose notes.

MNB's cautious message helps underpin the forint

"Governor Mihaly Varga repeated from the MPC statement that the RRR cut was a technical adjustment to offset reduced excess liquidity as a result of the expiry of pandemic-era loan programmes - hence, did not represent policy easing."

"As widely anticipated, governor Mihaly Varga reiterated that his policy message remains unchanged - that a "careful and patient" approach is necessary amid lingering inflation risks and geopolitical uncertainty. The decision reinforced the MNB's commitment to positive real rates for the coming medium-term - a policy message which has become increasingly credible as we have observed MNB dismissing near-term inflation improvements and take the conservative view that the fight against inflation has not been won yet."

"At the press briefing, Varga struck a hawkish tone on inflation expectations, warning they remain inconsistent with price stability; he credited recent improvement in CPI data to government-imposed price controls (which could have dampened headline inflation by 1.5pp). As we wrote in yesterday's preview, MNB's cautious message is liked by the FX market and this helps underpin the forint."