Policymakers raise base rate 15 bp to 1.8%


Photo by Andocs /

The Monetary Council of the National Bank of Hungary (MNB) decided to raise the central bank base rate by 15 bp to 1.8% at a monthly policy meeting on Tuesday, according to a report by state news wire MTI.

The rate-setters continued a tightening cycle started in June, albeit at a slower pace than in the summer months when rates rose 30 bp each month. Policymakers had signaled in September that the 15 bp increase that month would be indicative of hikes in the following months.

The council also decided on Tuesday to raise the O/N deposit rate by 15 bp to 0.85% and the O/N and one-week collateralized loan rates by 15 bp to 2.75%.

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 and preferential deposits.

Council flags higher short-run inflation path

In a statement released after the meeting, the Council said upside risks surrounding the inflation outlook may be more persistent than earlier thought.

"In the decisionmakers' assessment, the inflation outlook continues to be surrounded by upside risks which might prove to be more persistent than earlier expected," the policymakers said.

"For this reason, the council considers it necessary to continue the monthly interest rate tightening cycle," they added.

"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.

The council said the "significant" rise in commodities prices in recent weeks "points to a higher inflation path in the short run than expected in September", when the central bank released its quarterly Inflation Report.

In that report, MNB put CPI over 5% for the rest of 2021, before returning to its 2%-4% tolerance band in Q2 2022 and stabilizing around the 3% target in the second half.

"The risks to the outlook for inflation remain on the upside. Rises in commodity and energy prices, as well as international freight costs, continue to point to a higher external inflationary environment which is more persistent than previously expected. Demand-supply frictions emerging temporarily, and the renewed tightening of labor market capacities in certain sectors, combined with dynamic wage growth, also carry upside risks to inflation," the council said on Tuesday.

Rate setters indicate "dynamic" FX swap phase-out

The council said MNB will continue to phase out its FX swap facility, earlier used to pump liquidity into the banking sector, "in a dynamic way", while "taking into account the developments in the swap market".

When the policymakers took the decision on the FX swaps in September, they had said the phase-out would be "gradual".

The council also said on Tuesday that MNB "will prepare further steps to preserve the stability of the swap market and the effectiveness of monetary policy transmission in the coming months".

MNB has not accepted any bids at its weekly FX swap tenders since the September decision.

On Wednesday, the FX swap stock will fall to around HUF 967 billion.

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