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The monetary council of the CB cut the base rate by 50bp, to 6.50% today, in line with expectations. At the same time, the CB announced the widening of the interest rate corridor to +/- 100bp, from the earlier +/- 50bp, which came as a surprise. This effectively means that the interest rate on the overnight central bank deposits decreased by 100bp - from 6.50% to 5.50% - while the interest rate on overnight collateralized loans remained at 7.50%. Please note that the CB had tightened the interest rate corridor to +/- 50bp last October, when they had carried out an emergency hike of 300bp in the base rate (from 8.50% to 11.50%). Considering this, today's widening of the interest rate corridor rather indicates normalization of the markets. Given today's decision, the lower interest rate on deposits may decrease the amount of money, parking at the CB. On the other hand, the cost of any position against the forint has practically remained at the same level.
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