Hungarian Parliament building

Hungary Monetary Policy March 2022

Hungary: MNB ramps up rate hikes in March amid war in Ukraine

At its 22 March meeting, the Monetary Council of the Hungarian National Bank (MNB) decided to raise its base rate to 4.40% from 3.40%, marking the tenth consecutive increase and the largest hike since 2008. Moreover, the Bank increased the overnight deposit rate, the overnight collateralized lending rate and the one-week collateralized lending rate by 100 basis points each, to 4.40%, 7.40% and 7.40%, respectively.

Soaring inflationary pressures and mounting upside risks to the inflation outlook amid the outbreak of war in Ukraine led the Bank to shift gears. Headline inflation accelerated to 8.3% in February from 7.9% in January, moving further above the Bank’s target range of 3.0% plus or minus one percentage point, with inflation expectations rising further and growing more entrenched above the target band. The Bank expects headline inflation to start declining later than previously expected, coming in between 7.5% and 9.8% this year, and between 3.3% and 5.0% in 2023.

Looking ahead, the Bank sees mounting upside risks to inflation stemming from supply chain disruptions and higher energy and commodity prices, dynamics which are driven by the Russia-Ukraine war. It therefore reiterated that it will continue to raise rates to anchor inflation expectations and mitigate second-round inflation risks. However, the Bank also added a strong reference to financial market stability, saying it “stands ready to intervene using every element in its monetary policy toolkit to ensure [it]”.

The next monetary policy meeting is scheduled for 26 April.

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