Hungarian Parliament building

Hungary Monetary Policy September 2021

Hungary: MNB delivers fourth consecutive rate hike in September

At its 21 September meeting, the Monetary Council of the Hungarian National Bank (MNB) decided to raise its base rate to 1.65% from 1.50%, marking the fourth 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 0.70%, 2.60% and 2.60%, respectively. Additionally, the Bank decided to continue the gradual winding down of the government securities purchase program.

The MNB’s decision was again aimed at curbing persistent inflationary pressures and reducing upside risks, amid a sustained recovery and robust wage growth. Headline inflation rose to 4.9% in August due to mounting price pressures for fuels and industrial goods, therefore moving further above the Bank’s target range of 3.0% plus or minus 1.0 percentage point, while core inflation came in at 3.6%. The Bank now expects inflation to end 2021 above 5.0%, before falling back into the target range in the second quarter of 2022 and stabilizing around the midpoint of the band in H2 2022. On the growth front, the economy has seemingly continued to expand strongly in Q3 amid a fast vaccine rollout.

Looking ahead, the Bank noted that global supply shortages, higher commodity prices and international freight costs, along with recovering activity, represent the main upside risks to inflation. That said, although it outlined that September’s rate increase will be the fourth of a cycle of hikes, the Bank also hinted at a slower pace of tightening ahead.

The next monetary policy meeting is scheduled for 19 October.

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