Hungarian Parliament building

Hungary Monetary Policy April 2021

Hungary: MNB holds its ground in April

At its 27 April 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 driven by the need to support the economic recovery, despite mounting price pressures. The economy likely contracted in the first quarter of this year, hit by the re-establishment of measures to curb a new wave of Covid-19 cases. That said, the relatively fast vaccination campaign and the subsequent easing of restrictions in April should translate into a marked improvement in economic conditions in Q2. As such, the Bank sees growth for this year between 4.0% and 6.0%, and within the 5.0%–6.0% range for 2022.

On the price front, headline inflation rose again in March, while core inflation remained elevated. The combined effect of excise tax hikes, supply chain disruptions and rising fuel prices will push inflation towards 5% in the second quarter before it starts to decline. Inflation is seen averaging 3.8%–3.9% in 2021, with the main upside risks stemming from an increase in emerging-market risk aversion and recovering activity, while a prolonged health crisis poses the most significant downside risk.

Looking ahead, the Bank stuck to a moderately hawkish tone in its communiqué, as it reaffirmed that it stands ready to use appropriate instruments to contrast potential inflationary pressures stemming from the economic recovery and financial market developments. At the same time, the MNB stated it will maintain a lasting and quantitatively flexible presence in the government securities market in order to keep financial conditions supportive.

The next monetary policy meeting is scheduled for 25 May.

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