Inflation has not yet been defeated, and the struggle must continue. The inflation rate may reach about 7 percent at the end of the year, which is the central bank’s target of 3 percent. The policy rate could fall below 10% for the first time in February 2024, if all goes well and the central bank is able to proceed with 75 basis points of cuts.

We cannot declare victory over inflation too early – warned Vice President Barnabas Virage during the background discussion after the Monetary Council’s decision to cut interest rates. This warning is also directed at Prime Minister Viktor Orbán, who has already declared victory over inflation. Viraj reminded him that the inflation rate, which reached 9.9% in October, was still well above the 3% target.

The Vice President added that the sooner we return to a lower inflation rate, the better the economy’s prospects will be. This is also a message to the government, primarily to his predecessor, Marton Nagy, who is currently Minister of Economic Development. Nagy considers strengthening the economy a priority, even at the expense of higher inflation. On the other hand, according to the Central Bank – and its president, Gyorgy Matulsi personally – sustained high economic growth is not possible with high inflation.

Viraj said that according to our current knowledge, the inflation rate at the end of the year could be around 7 percent. But there is a lot of uncertainty, and how oil and raw material prices develop will be decisive. Domestic inflation is cooling down on the regional scene, and by the end of the year it may lose its permanent tag (European champion).

The Central Bank believes that the trend is good, and this process must continue. There is a general contraction in the economy, and the rate of decline in inflation is particularly strong in the area of ​​food and manufactured goods. The “short-term pricing patterns” already show a pre-2020 picture, for example, only a slight increase in core inflation can be seen compared to the previous month’s prices.

In parallel with the slowdown in inflation (“based on currently available data and information”), the policy interest rate may fall below 11 percent by the end of the year, and may fall below 10 percent in February. The Vice President stressed that decisions to cut interest rates should be made month by month.

In other words, the current pace of interest rate cuts may continue even into December, resulting in a base interest rate of 10.75 percent. Then further cuts of 75 basis points are expected for the first two months of the new year.




HVG


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