MNB raises base rate by 200 bp to 9.75%


Photo by Adriana Iacob/

The Monetary Council of the National Bank of Hungary (MNB) raised the central bank base rate by 200 bp to 9.75% at a meeting on Tuesday, according to a report by state news wire MTI.

The council also decided on Tuesday to raise the O/N deposit rate by 200 bp to 9.25% and the O/N and one-week collateralized loan rates by 200 bp to 12.25%.

The O/N deposit rate and the collateralized loan rate mark the bottom and the top, respectively, of the central bank's "interest rate corridor". The base rate is paid on mandatory reserves.

The central bank had flagged a base rate hike for Tuesday - when a non-rate-setting meeting was scheduled - after raising the rate on its one-week deposit facility by 200 bp to 9.75% on Thursday.

The forint traded at 410.59 to the euro around 15 minutes after the decision was announced, firming from 412.18 a little before 1:00 in the afternoon.

In a statement released after the meeting, policymakers said they considered it "necessary" for the rise in the one-week deposit rate to be incorporated into the base-rate tightening cycle "as soon as possible".

"Due to the increased challenges, in order to anchor inflation expectations and mitigate second-round inflation risks, it is warranted to raise the base rate to the level of the one-week deposit interest rate," the Council said.

"The [MNB] continues to stand ready to respond quickly and flexibly by setting the interest rate on the one-week deposit instrument if warranted by the rise in short-term risks in financial and commodity markets," they added.

"The further rise in inflation and persistent inflation risks warrant the decisive continuation of the tightening cycle. The [MNB] continuously monitors developments in financial market risks as well and stands ready to intervene in a decisive manner using every instrument in its monetary policy toolkit, if necessary," the statement said. 

"The Monetary Council will continue the cycle of interest rate hikes until the outlook for inflation stabilizes around the central bank target in a sustainable manner and inflation risks become evenly balanced on the horizon of monetary policy," the policymakers reiterated.

Managing inflation risks

At a press briefing after the meeting, MNB deputy governor Barnabas Virág said the central bank's swap tenders providing euro liquidity within the quarter, launched on July 8, were producing results noting an increase in O/N implied yields.

He added that MNB would strengthen the effectiveness of monetary policy transmission through an "active, regular" market presence, and stands ready to use the swap tenders providing euro liquidity "on a regular basis, with sufficient volume" as long as is warranted by the market situation.

Virág said the council views managing second-round inflation risks as "a priority", adding that decisive interest rate steps contribute to anchoring expectations.

He acknowledged that the recently developed situation on FX markets "clearly puts price stability at risk", but said there was "no consequential spillover" on other markets. On the swap market, long-term yields were stable, while a temporary divergence for short-term yields was managed by the MNB's swap tenders, he said. On the government securities market, yields didn't change drastically and demand didn't fall, while the operation of the banking system remained stable, he added.

Virág said the coordination of fiscal and monetary policy in the current environment is "extremely important", adding that an improvement in balance indicators increases the effectiveness of monetary policy.

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