Hungarian Parliament building

Hungary Monetary Policy October 2021

Hungary: MNB delivers fifth consecutive rate hike in October

At its 19 October meeting, the Monetary Council of the Hungarian National Bank decided to raise its base rate to 1.80% from 1.65%, marking the fifth consecutive increase. Moreover, the Bank hiked the overnight deposit rate, the overnight collateralized lending rate and the one-week collateralized lending rate by 15 basis points to 0.85%, 2.75% and 2.75%, respectively.

Mounting inflationary pressures and upside inflation risks amid a sustained recovery were behind the Bank’s decision to hike rates. Headline inflation rose to 5.5% in September, therefore moving further above the Bank’s target range of 3.0% plus or minus 1.0 percentage point, while core inflation stood at 4.0%. The Bank expects inflation to continue increasing in the autumn months, before falling back into the target range in the second quarter of 2022 and stabilizing around the midpoint of the band in H2 2022. Meanwhile, on the growth front, activity likely continued to expand strongly in Q3 amid a fast vaccine rollout.

Looking ahead, the Bank noted that higher prices for commodities and international freight, persistent global supply shortages, recovering activity and a tight labor market represent the main upside risks to inflation. Therefore, it outlined that October’s rate increase will be the fifth of a cycle of hikes which will extend “until the outlook for inflation stabilises around the Central Bank target in a sustainable manner and inflation risks become evenly balanced on the horizon of monetary policy”.

Commenting on potential future decisions, analysts at UniCredit said:

“Two more rate hikes to 2.10% are expected this year. We believe that the [Bank] will have to continue hiking in 2022 due to strong inflationary pressure that may not abate as fast as [it] expects. Thus, we think the key rate could be taken to 2.5% next year. Meanwhile, further tapering of bond purchases will probably lead to a bear-steepening of the HGB curve.”

The next monetary policy meeting is scheduled for 16 November.

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