Hungarian Parliament building

Hungary Monetary Policy January 2023

Hungary: MNB stands pat in January

At its 24 January meeting, the Monetary Council of the Hungarian National Bank (MNB) left its base rate unchanged at 13.00% for the fourth consecutive meeting. Moreover, the Bank left the overnight deposit rate and the overnight collateralized lending rate unchanged at 12.50% and 25.00%, respectively.

The Bank reiterated that it would keep interest rates stable for an extended period. It expects that the aggressive tightening cycle, which ended in October, will anchor inflation expectations. This, together with cooling external price pressures, cooling domestic demand and a fading base effect should bring inflation within the Banks target range of 3.0% plus or minus one percentage point in 2024. That said, headline inflation accelerated to 24.5% in December from 22.5% in November, moving further above the Banks target. A faster increase in prices for fuels was behind the acceleration.

Looking ahead, the Bank sees the current rate level as adequate to manage inflation risks. The MNB expects inflation to decline gradually in H1 2023 and more significantly in the second half of the year. 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”.

Commenting on the release, Orsolya Nyeste, analyst at Erste, stated:

“We continue to think that at the March rate-setting meeting – provided that supportive market environment remains and the inflation peak pasts – there would be room for the central bank to carry out normalization steps via approaching or maybe merging the one-day depo rate and the policy rate. However, the monetary easing process should only accelerate in H2, in parallel with the expected continuous decline of inflation. The policy rate might be reduced to 9-10% by the year-end, in our view.”

The next monetary policy meeting is scheduled for 28 February.

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