Hungary Monetary Policy August 2021


Hungary: MNB delivers third consecutive rate hike in August

August 25, 2021

At its 24 August meeting, the Monetary Council of the Hungarian National Bank (MNB) decided to raise its base rate to 1.50% from 1.20%, marking the third 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 0.55%, 2.45% and 2.45%, respectively. Additionally, the Bank decided to begin gradually withdrawing the government securities purchase program.

The MNB’s decision was again aimed at limiting persistent inflationary pressures and reducing upside risks, amid a strong recovery and sustained wage growth. Headline inflation dropped to 4.6% in July, due to a base effect, although it remained well above the Bank’s target range of 3.0% plus or minus 1.0 percentage point, while core inflation came in at 3.5%. 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 continued to expand strongly in Q2, exceeding pre-pandemic levels, amid a fast vaccine rollout and the gradual easing of restrictions.

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. Therefore, it outlined that August’s rate increase will be the third of a cycle of hikes designed to stabilize inflation around the Bank’s target and reduce upside inflation risks.

The next monetary policy meeting is scheduled for 21 September.

FocusEconomics Consensus Forecast panelists are still assessing the latest developments and new forecasts will be released on 7 September.

Author: Massimo Bassetti, Senior Economist

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