Hungary Monetary Policy August 2022


Hungary: MNB hikes rates again in August

August 30, 2022

At its 30 August meeting, the Monetary Council of the Hungarian National Bank (MNB) raised its base rate to 11.75% from 10.75%, marking the 16th consecutive increase. 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 11.25%, 14.25% and 14.25%, respectively. On top of this, the MNB introduced three additional measures to reduce excess liquidity and strengthen the monetary transmission mechanism, including an increase in the reserve requirement ratio.

The Bank continued to tighten its stance due to surging inflation and elevated inflation expectations amid the ongoing war in Ukraine. Headline inflation accelerated to 13.7% in July from 11.7% in June, moving further above the Bank’s target range of 3.0% plus or minus one percentage point. Moreover, core inflation rose to 16.7% in the same month, from 13.8% in June. The Bank expects inflation to increase further in the coming months—due to high commodity and energy prices, the drought in Europe and changes in official energy price regulations—peaking in autumn and then declining gradually from 2023 onwards.

Looking ahead, the Bank sees strong upside risks to inflation stemming from persistently high commodity and energy prices, supply disruptions, second-round effects and de-anchored inflation expectations. These dynamics are being worsened by the Russia-Ukraine war. The Bank, therefore, reiterated that it will continue to raise rates to anchor inflation expectations and mitigate second-round inflation risks, reiterating that “maintaining tighter monetary conditions for a longer period is warranted”.

Commenting on the release, Peter Virovacz and Frantisek Taborsky, analysts at ING, stated:

“In general, we’ve got what we expected from the August rate setting meeting and the outcome is in line with our preview and broader view. We affirm our call that the NBH will probably lower its step sizes in the next meetings as the just announced new measures will slowly but surely improve the monetary transmission. We see the gradual slowdown in the tightening cycle end in a 14% terminal rate with the last hike probably coming in December 2022. At the same time, as with inflation, we see upward risks in the case of interest rates as well. This could not just mean a higher terminal rate, but an extended rate hike cycle into 2023.”

The next monetary policy meeting is scheduled for 27 September.

FocusEconomics Consensus Forecast panelists are still assessing the latest developments and new forecasts will be released on 6 September.

Author: Massimo Bassetti, Senior Economist

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