Hungarian Parliament building

Hungary Monetary Policy April 2022

Hungary: MNB delivers another 100 basis point rate hike in April

At its 26 April meeting, the Monetary Council of the Hungarian National Bank (MNB) decided to raise its base rate to 5.40% from 4.40%, marking the eleventh consecutive increase and the joint-largest hike since 2008. Moreover, the Bank increased the overnight deposit rate, the overnight collateralized lending rate and the one-week collateralized lending rate by 100 basis points each, to 5.40%, 8.40% and 8.40%, respectively.

Mounting inflationary pressures and increasing upside risks to the inflation outlook amid the ongoing war in Ukraine led the Bank to tighten its stance again. Headline inflation accelerated to 8.5% in March from 8.3% in February, moving further above the Bank’s target range of 3.0% plus or minus one percentage point. The Bank expects inflation to increase further in Q2, only falling back into the tolerance band in H2 2023.

Looking ahead, the Bank sees mounting upside risks to inflation stemming from global supply constraints, higher energy and commodity prices, and second-round effects. These dynamics are being exacerbated by the Russia-Ukraine war. It therefore reiterated that it will continue to raise rates to anchor inflation expectations and mitigate second-round inflation risks.

Commenting on the decision, Peter Virovacz, economist at ING, stated:

“We believe that the central bank is committed to tackling inflation with tighter monetary conditions. The fact that the MNB envisions a constant improvement in the real interest rate environment in coming quarters is also supportive for the forint. However, all the risks emphasised by the MNB (war, fiscal and external imbalances, rule-of-law debate) will keep investors on alert. We see EUR/HUF around 370 in the short run with a possible quick move to 355-360 should we see a sudden de-escalation in geopolitics or a pledge on strong fiscal rebalancing which would improve the external balance as well.”

The next monetary policy meeting is scheduled for 31 May.

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