Hungarian Parliament building

Hungary Monetary Policy December 2020

Hungary: MNB stands pat at last meeting of the year

At its meeting on 15 December, 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. Moreover, it reaffirmed that it will keep using the government securities purchase program to the extent and for the time it deems necessary, and that it will continue to provide SMEs with sufficient liquidity in order to boost growth.

The MNB’s decision to stay on hold was aimed at supporting the recovery while keeping inflation in check. Following Q3’s strong rebound in GDP, momentum seems to have waned considerably in Q4 as the rise in coronavirus cases prompted the government to reintroduce restrictive measures, heightening economic uncertainty. The Bank now sees the economy contracting 6.0%–6.5% this year, before expanding 3.5%–6.0% in 2021 and 5.0%–5.5% in 2022. On the price front, inflation moderated further in November, although price pressures should intensify going forward due to an increase in excise taxes on tobacco products and a supportive base effect. Inflation is thus seen averaging 3.5%–3.6% in 2021 before easing to around 3.0% in 2022.

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, while reiterating 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 26 January.

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