Hungarian Parliament building

Hungary Monetary Policy January 2021

Hungary: MNB keeps monetary policy framework unchanged at first meeting of the year

At its meeting on 27 January, 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. At the same time, the Bank stated that it will partly reallocate liquidity from its collateralized lending facility towards government securities purchases, in order to provide continuous liquidity in the government securities market. Lastly, it will continue to provide SMEs with sufficient liquidity and increase liquidity in the corporate bond market in order to sustain recovering activity.

The MNB’s decision to stay put suggested a balancing act between the divergent objectives of supporting the recovery and keeping inflation in check. The economy most likely lost momentum in Q4 2020 due to the reintroduction of restrictive measures, and is expected to remain subdued in Q1 before starting to normalize in Q2. As such, the Bank sees the economy contracting 6.0%–6.5% in 2020, before expanding 3.5%–6.0% this year and 5.0%–5.5% in 2022. On the price front, core inflation remained elevated in December. Price pressures should intensify in the coming spring months owing to an increase in excise taxes on tobacco products and a supportive base effect, before they start to decline. Inflation is seen averaging 3.5%–3.6% in 2021 before easing to around 3.0% in 2022, with the main upside risk stemming from the increase in emerging-market risk aversion.

Looking ahead, the Bank maintained a moderately hawkish tone in its communiqué, as it reaffirmed that it stands ready to use appropriate instruments if inflationary pressures stemming from the pandemic persist. Furthermore, it reiterated that it considers the current monetary policy stance supportive of “price stability, the preservation of financial stability and the recovery of economic growth in a sustainable manner”.

The next monetary policy meeting is scheduled for 23 February.

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