A Sixth Hungarian Central Bank Rate Hike

November 16, 2021

Magyar Nemzeti Bank’s base rate was raised 30 basis points today to 2.1%. The increase and its size matched expectations. This cycle of gradual increases began in June, hasn’t missed a month, and thus far totals 150 basis points. More tightening is to be expected, as officials served notice that projected inflation in 2022 will be revised substantially upward next month.

A persistent rise in external inflationary pressures and increasing second-round inflation risks have necessitated more extensive and longer lasting monetary policy tightening. The Council still considers it necessary to continue the interest rate tightening cycle on a monthly basis. The projection of the December Inflation Report will be decisive in determining the further extent of interest rate hikes. The Monetary Council will continue the cycle of interest rate hikes until the outlook for inflation stabilises around the central bank target in a sustainable manner and inflation risks become evenly balanced on the horizon of monetary policy.

The Hungarian National Bank’s council targets medium-term inflation at 3.0%. In the twelve months through October, consumer prices rose 6.5%, more than double that objective, and such is expected to climb above 7.0% this month. From a peak of 7.0% at the end of 2011, the base rate had been lowered progressively via many small increments to 2.10% by July 2014 and 0.90% by May 2016. It remained at that level until a pair of 15-basis point Covid-reactive reductions in June and July of 2020. Hungarian GDP growth recently slowed but is expected to remain robust and fall within a 5-6% range next year.

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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