Hungary Monetary Policy March 2021


Hungary: MNB keeps rates unchanged in March

March 24, 2021

At its 23 March 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 represented a balancing act between the need to support the post-Covid-19 recovery and contain price pressures. The economy has likely weakened in the first quarter of this year, weighed down by the reinstatement of restrictions to curb rising new Covid-19 cases, after a better-than-expected GDP reading in Q4 2020. As the vaccine rollout is progressing at a relatively fast pace, conditions are expected to improve 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 jumped in February due to a spike in fuel prices, while core inflation remained elevated. An increase in excise taxes and supply disruptions will propel inflation towards 5% in the coming spring months before it starts to decline. Inflation is seen averaging 3.8%–3.9% in 2021 before easing to around 3.0% in 2022, with the main upside risks stemming from the increase in emerging-market risk aversion and recovering activity.

Looking ahead, the Bank maintained 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.

The next monetary policy meeting is scheduled for 27 April.

FocusEconomics Consensus Forecast panelists see the base rate ending 2021 at 0.60% and 2022 at 0.77%.

Author: Massimo Bassetti, Senior Economist

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