Hungary Monetary Policy June 2021


Hungary: MNB delivers first rate hike since beginning of pandemic amid mounting inflationary pressures

June 23, 2021

At its 22 June meeting, the Monetary Council of the Hungarian National Bank (MNB) decided to hike its base rate from an all-time low of 0.60% to 0.90%. Moreover, the Bank closed the “Funding for Growth Scheme Go!”—an extraordinary credit growth program launched in the middle of the pandemic crisis—while it held all other rates steady.

The MNB’s decision was aimed at cooling mounting inflationary pressures, anchoring inflation expectations and reducing upside risks, amid a stronger-than-expected recovery and sustained wage growth. Headline inflation was stable at 5.1% in May, but remained well above the Bank’s target range of 3.0% plus or minus 1.0 percentage point, while core inflation accelerated further to 3.4%. The Bank now expects inflation to spike in Q2 and then moderate in the third quarter. It sees it averaging 4.1% this year, and falling back into the tolerance band in 2022. On the growth front, the economy continued to recover robustly in Q1, despite tighter Covid-19 restrictions, and available data points to momentum gaining further steam in the second quarter amid the fastest vaccination campaign in the European Union and the gradual removal of restrictions. As such, the Bank raised its growth forecasts to 5.1% and 3.4% for 2021 and 2022, respectively.

Looking ahead, the Bank sees supply disruptions, higher commodity prices and recovering activity as the main upside risks to inflation. Therefore, it outlined that June’s rate increase will be the first of a cycle of hikes designed to “ensure price stability, prevent inflation risks from having long-lasting effects and to anchor inflation expectations”, which will last until “the outlook for inflation stabilizes around the Central Bank target and inflation risks become evenly balanced”.

The next monetary policy meeting is scheduled for 27 July.

FocusEconomics Consensus Forecast panelists are still assessing the latest developments and new forecasts will be released on 6 July.

Author: Massimo Bassetti, Senior Economist

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