Hungarian Parliament building

Hungary Monetary Policy August 2023

Hungary: MNB narrows interest rate corridor again in August

At its 29 August meeting, the Monetary Council of the Hungarian National Bank (MNB) left its base rate unchanged at 13.00% for the eleventh consecutive meeting. However, the Bank cut the overnight collateralized lending rate to 16.50% from 17.50%, while it left the overnight deposit rate unchanged at 12.50%, thereby narrowing the interest rate corridor for the fifth consecutive meeting.

The Bank said that the decision to narrow the interest rate corridor was part of its ongoing normalization of the interest rate environment. It also reiterated that it would continue to reinforce monetary policy transmission by absorbing interbank forint liquidity, thus reducing liquidity in the economy.

The Bank reiterated that it would keep the base rate at its current level for a protracted period, as it expects the current tight monetary policy stance to continue to have a disinflationary effect. This, together with subdued activity and a favorable base effect, should bring inflation down to single digits by the end of this year and within the Bank’s target range of 3.0% plus or minus one percentage point in early 2025. The headline inflation rate decelerated to 17.6% in July from 20.1% in June, and the Bank expects it to fall below 10% in the autumn.

Looking ahead, the Bank sees the current rate as adequate to manage inflation risks. The MNB expects inflation to slow at an accelerating pace in the coming months. That said, the Bank reiterated that it would keep monetary conditions tight until “inflation expectations are anchored and the inflation target is achieved in a sustainable manner”.

The next monetary policy meeting is scheduled for 26 September.

Commenting on the meeting, economists at ING stated:

“The National Bank of Hungary continued its normalisation in August with another 100bp cut in the effective interest rate. However, monetary policy is likely come off autopilot from September. The central bank believes that market expectations of rate cuts in the fourth quarter are exaggerated.”

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