MNB commitment to price stability undoubted, says dep gov


Barnabás Virág

Photo by MTI / János Bugány.

In the current extraordinary environment, only decisive, credible monetary policy, based on a step-by-step approach, can lead to success, and this is the strategy of the National Bank of Hungary (MNB), central bank deputy governor Barnabás Virág said in an interview with state news wire MTI.

Virág said the world's central banks are fighting inflation the likes of which hasn't been seen in half a century. The reasons for that inflation are manifold and include supply problems caused by the coronavirus pandemic, the war in Ukraine, the European energy crisis, the drought, and the global labor shortage, and the consequences are "brutal", he added.

He pointed to the latest inflation data showing double-digit CPI in 15 of the European Union's 27 member states.

Virág noted that MNB was among the first central banks, in the spring of 2021, to signal the risk of persistently high inflation, and it was the first in the EU, in June of that year, to launch a tightening cycle, the scale of which has been unmatched.

As a result, Hungary is among just a few countries in the world where real interest rates have climbed in spite of the spike in inflation, he added.

MNB policy makers' decision on Tuesday to raise the central bank base rate to 10.75% - a double-digit level rarely used in the modern era of central banking, and only applied to fight against "extraordinarily high" inflation - came with a clear message: this rarely used level must be employed for the recovery of price stability, Virág said.

"Nobody can question our commitment to price stability," he added. 

He said there are no "quick successes" in the current environment. Runaway energy prices caused by the war, the severe drought or the changes to regulated prices all lie outside of the scope of influence of monetary policy, he added.

For that reason, he said it would be a "serious professional error" to question the impact of interest rate rises in data released in the coming weeks and months.

He warned that high inflation would be "even more painful" if it becomes a self-perpetuating process, "dominated by delusion instead of real economy facts".

All of the world's central banks are striving to manage second-round effects and anchor inflation expectations, and MNB is doing exactly that, too, he said.

"Our goal is to prevent the development of second-round effects with a decisive tightening cycle that progresses step by step, and by these means to once again achieve price stability after the situation on the global market is resolved," he said.

"MNB has been able to achieve all of the goals in its legal mandate since 2013. We live in dangerous times, which is why ensuring stability is the priority. That is the alpha and the omega of all of our decisions," he added.

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