Hungarian Parliament building

Hungary Monetary Policy May 2021

Hungary: MNB holds fire but strikes more hawkish tone in May, amid mounting inflation risks

At its 25 May meeting, the Monetary Council of the Hungarian National Bank (MNB) decided to keep the base rate unchanged at the all-time low of 0.60%, and also held all other instruments steady, which was in line with market analysts’ expectations.

The MNB’s decision was aimed at keeping favorable financing conditions and thus supporting the ongoing recovery, despite mounting price pressures. The economy surprised markets on the upside and continued to recover in Q1, despite the reimposition of measures to curb a new wave of Covid-19 cases, and it should gain further steam in Q2 amid the fastest vaccination campaign in the European Union and the subsequent easing of restrictions. As such, the Bank sees growth for this year between 4.0% and 6.0%. On the price front, headline inflation rose again in May, while core inflation remained elevated. The protracted effect of excise tax hikes, supply chain disruptions and rising energy prices was behind the spike in inflation and should continue to stoke price pressures ahead.

Looking ahead, the Bank stated upside risks to inflation associated with supply disruptions, higher commodity prices and recovering activity have risen recently. Therefore, it struck a somewhat more hawkish tone than in its previous communiqué, stating that it stands ready to “tighten monetary conditions in a proactive manner to the extent necessary in order to ensure price stability and to mitigate inflation risks”.

The next monetary policy meeting is scheduled for 22 June.

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