Hungarian Parliament building

Hungary Monetary Policy September 2022

Hungary: MNB hikes rates again in September but announces end of hiking cycle

At its 27 September meeting, the Monetary Council of the Hungarian National Bank (MNB) raised its base rate to 13.00% from 11.75%, marking the 17th consecutive increase and surprising markets on the upside. Moreover, the Bank increased the overnight deposit rate, the overnight collateralized lending rate and the one-week collateralized lending rate by 125 basis points each, to 12.50%, 15.50% and 15.50%, respectively.

The Bank continued to tighten its stance due to soaring inflation and elevated inflation expectations amid surging food prices. Headline inflation accelerated to 15.6% in August from 13.7% in July, moving further above the Bank’s target range of 3.0% plus or minus one percentage point. Moreover, core inflation jumped to 19.0% in the same month, from 16.7% in July. The Bank expects inflation to increase further in the coming months—due to the exceptional drought, high energy prices and changes in official energy price regulations—peaking in autumn and then declining gradually from 2023 onwards.

Looking ahead, the Bank sees risks to inflation as symmetrical, with upside risks stemming from persistently high commodity and energy prices and second-round effects, and downside risks posed by a global economic slowdown and a reversal of energy and commodity prices. The Bank announced that it will stop increasing interest rates and would rather resort to FX and reserve ratio management to “tighten monetary conditions even further”.

Commenting on the release, Peter Virovacz and Frantisek Taborsky, analysts at ING, stated:

“In the short term, the question is what effect the [MNB’s] new liquidity measures unveiled earlier will have, from which the central bank has high hopes to improve monetary transmission and stabilise the forint. In the longer term, the topic of EU money remains on the table and will be with us until at least mid-November. Overall, we can thus expect more volatile weeks ahead around the 405 EUR/HUF level depending on incoming headlines.”

The next monetary policy meeting is scheduled for 25 October.

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