Hungary Monetary Policy July 2022

At its 26 July meeting, the Monetary Council of the Hungarian National Bank (MNB) raised its base rate to 10.75% from 9.75%, marking the 15th 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 10.25%, 13.25% and 13.25%, respectively.

The Bank continued to tighten its stance due to soaring inflation and a further intensification of upside inflation risks amid the ongoing war in Ukraine. Headline inflation accelerated to 11.7% in June from 10.7% in May, moving further above the Bank’s target range of 3.0% plus or minus one percentage point. Moreover, core inflation rose to 13.8% in the same month, from 12.2% in May. The Bank expects inflation to increase further in the coming months, peaking in autumn and then declining gradually. Inflation is seen reaching the 3.0% target only in H1 2024.

Looking ahead, the Bank sees mounting upside risks to inflation stemming from persistently high commodity and energy prices, supply disruptions and second-round effects. These dynamics are being aggravated 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”.

The next monetary policy meeting is scheduled for 30 August.

FocusEconomics Consensus Forecast panelists are still assessing the latest developments and new forecasts will be released on 2 August.