Hungary Monetary Policy September 2020


Hungary: MNB keeps base rate at historical low in September

September 22, 2020

At its meeting on 22 September, 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 it held all other instruments steady. Moreover, the Bank announced that it had ramped up its weekly government securities purchases and reintroduced its swap facility to provide foreign currency liquidity.

The MNB’s decision to stand pat reflected a balancing act between supporting the economic recovery and keeping inflation in check. The Bank confirmed that the economy bore the brunt of the Covid-19 crisis in Q2, with GDP tumbling 13.6% year-on-year. Therefore, the MNB revised down its economic outlook for 2020, and now sees the economy shrinking between 5.1% and 6.8% this year, to then grow between 4.4% and 6.8% in 2021. That said, the recent spike in infections will weigh on the performance of the economy ahead. On the price front, although both headline and core inflation accelerated in August, the Bank noted that the inflation rate is expected to moderate through year-end amid low oil prices and favorable base effects.

Looking ahead, the Bank struck a somewhat more hawkish tone in its communiqué. In fact, although it reaffirmed that it considers the current base rate supportive of “price stability, the preservation of financial stability and the recovery of economic growth in a sustainable manner”, it also stated that it stands ready to use appropriate instruments if inflationary effects stemming from the pandemic persist.

The next monetary policy meeting is scheduled for 20 October.

FocusEconomics Consensus Forecast panelists see the base rate ending 2020 at 0.55% and 2021 also at 0.55%.

Author: Massimo Bassetti, Senior Economist

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Hungary Monetary Policy Chart

Hungary Monetary Policy September 20 20 1

Note: Central Bank base rate in %.
Source: Hungarian National Bank (MNB).

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