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Hungary Monetary Policy July 2021

Hungary: MNB delivers second consecutive rate hike in July

At its 27 July meeting, the Monetary Council of the Hungarian National Bank (MNB) decided to raise its base rate to 1.20% from 0.90%, marking the second consecutive increase. Moreover, the Bank hiked the overnight deposit rate, the overnight collateralized lending rate and one-week collateralized lending rate by 30 basis points to 0.25%, 2.15% and 2.15%, respectively. Additionally, the Bank decided to terminate the use of the long-term collateralized lending facility.

The MNB’s decision was again aimed at curbing persistent inflationary pressures, re-anchoring inflation expectations and reducing upside risks, amid a robust recovery and buoyant wage growth. Headline inflation rose to 5.3% in June, moving further above the Bank’s target range of 3.0% plus or minus 1.0 percentage point, while core inflation accelerated further to 3.8%. The Bank now expects inflation to remain above its tolerance band until the end of this year, before falling back into that range at the beginning of 2022. On the growth front, the economy seemingly continued to perform strongly in Q2 amid a fast vaccine rollout and the gradual lifting of restrictions. As such, the Bank sees the economy expanding by around 6.0% this year and 5.5% in 2022.

Looking ahead, the Bank sees supply disruptions, higher commodity prices and international freight costs, along with recovering activity, as the main upside risks to inflation. Therefore, it outlined that July’s rate increase will be the second of a cycle of hikes designed to “ensure price stability, avoid second-round inflationary 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 24 August.

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