Hungarian Parliament building

Hungary Monetary Policy February 2022

Hungary: MNB delivers ninth consecutive rate hike in February; announces further hikes ahead

At its 22 February meeting, the Monetary Council of the Hungarian National Bank decided to raise its base rate to 3.40% from 2.90%, marking the ninth consecutive increase. Moreover, the Bank hiked the overnight deposit rate, the overnight collateralized lending rate and the one-week collateralized lending rate by 50 basis points each, to 3.40%, 5.40% and 5.40%, respectively.

Intensifying inflationary pressures and rising upside risks to the inflation outlook, coupled with robust economic activity, drove the Bank’s decision. Headline inflation accelerated to 7.9% in January from 7.4% in December, moving further above the Bank’s target range of 3.0% plus or minus 1.0 percentage point, while core inflation jumped to 7.4%, from 6.4% in December. Meanwhile, the economy expanded robustly in Q4. The Bank expects headline inflation to start declining later than previously expected, and it sees core inflation as potentially rising further ahead as firms rush to reprice their goods amid higher commodity prices and strong wage growth.

Looking ahead, the Bank reiterated that it will continue to raise monthly rates. The Bank said such tightening would continue in order to anchor inflation expectations and mitigate second-round inflation risks, amid persistently high prices for energy and commodities, elevated international freight costs and strong wage growth.

Commenting on the Bank’s decision, Peter Virovacz, senior economist at ING, stated:

“Regarding the rates market, we don’t see a significant chance that the NBH will under-deliver on recent rate hike expectations. In contrast, with the emphasis being put on the rising upside risks in the inflation outlook and taking into consideration the latest hint at the convergence of the base rate and the one-week deposit rate, we see room for a repricing in rate hike expectations in money markets. We call the base rate and the effective rate to peak at 6.40% in August, while the market still expects the tightening cycle to top out at 6.0%. This means that both the short and the long end of the yield curve will move up further (the former to a greater extent).”

The next monetary policy meeting is scheduled for 22 March.

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