Is Hungary’s Inflation Rate Nearing a Turning Point?


As expected, the central bank left the base interest rate unchanged at its latest rate-setting meeting, noting that inflation is getting closer to a turning point. Analysts agree that the National Bank of Hungary (MNB) is pursuing a strict monetary policy, even with an unchanged base rate.

Fresh data suggests inflation might be getting closer to a turning point, according to MNB bank deputy governor Barnabás Virág. Hungary’s central bank is ready to use all the tools at its disposal to restore price stability, Virág said in a recent interview on, the news portal of leading business publication Világgazdaság [Global Economy].

“The central bank will use all tools to reach price stability and preserve financial stability at all costs,” Virág was quoted as saying in the interview.

A turnaround in the basic inflation processes is already being outlined, but in October, variable food prices may still increase inflation, Virág had said in an online background discussion on October 25, right after the latest rate-setting meeting of the Monetary Council of MNB. At that meeting, the 13% base rate was left unchanged, as was the interest rate corridor, and Virág also mentioned that the balance of the current account is improving faster than expected.

The deputy governor said that domestic demand has slowed and global raw material prices have fallen, which predicts a slowdown in inflation. September may have been the lowest point in the current account balance data, improving the balance faster than expected. Energy prices on the world market have fallen, and the cost of natural gas has halved; the net energy bill of the Hungarian economy could therefore be around EUR 1 billion, he explained.

Prolonged High Interest

When asked about the reduction of the base interest rate, he said a time when that might come is not visible at present; a prolonged high-interest rate environment is needed to reverse inflation. In the approximately one and a half years horizon of monetary policy, inflation “must be on a decreasing path,” he noted.

Analysts do not expect further tightening in policy. According to them, the Monetary Council’s decision was in line with expectations in that it did not change either the 13% base interest rate or the interest rate corridor.

Gábor Regős, head of the Makronóm Institute, said that although the monetary policy of the upcoming period will be strict, it is not expected to tighten further, and it will only be modified in accordance with the reduction of liquidity. To suppress inflation, which is well above target, and to prevent the further weakening of the forint, the central bank is pursuing a strict monetary policy, even with an unchanged base interest rate.

According to Regős, the MNB seems to be optimistic about inflation, and in its analysis, it already expects the consumer price index to soften next year. He believes that falling but still high energy and raw material prices and decreasing demand can lead to a slowdown in inflation.

Strengthening Forint?

The central bank also found that the current account balance is now improving due to lower energy prices, he recalled. This can help the forint to strengthen and thus also curb inflation, Regős noted. If market processes do not develop in accordance with the central bank’s expectations, additional steps may be necessary to achieve the inflation target, the expert warned.

According to Zoltán Varga, senior analyst at Equilor Zrt., the Monetary Council acted as expected when it did not change the interest rate conditions. The basic interest rate will remain, while the extraordinary measures are temporary. He explained that the rate of price increase might remain high in the coming months, and the base effect can only curb inflation to a minimal extent. According to Equilor’s expectations, annual average inflation may be between 13.5 and 14%.

Gergely Suppan, the head analyst of Magyar Bankholding, also emphasized that the strict monetary conditions will be long-lasting, which ensures the anchoring of inflation expectations and the achievement of the inflation target in a sustainable manner. He noted that the tightening of conditions has continued with the narrowing of liquidity.

The analyst expects that in the first third of 2023, the overnight deposit instrument’s interest rate may drop to the level of the base interest rate and then might be phased out. Due to the increasingly strong base effects, inflation may turn from the beginning of next year, he said, to which the recent sharp drop in energy prices may even pose a downside risk.

Suppan expects the base rate to be reduced from the middle of next year, and possibly by an even greater extent in the last quarter of 2023 as the rate of inflation decreases, so that the base rate may drop to 9% by the end of 2023.

Numbers to Watch in the Coming Weeks

The Central Statistical Office (KSH) will release data on the September retail trade and also on Hungary’s industrial output on November 8. A day later, the October consumer price index will be out. The flash estimate of third-quarter GDP data will be published on November 15.

This article was first published in the Budapest Business Journal print issue of November 7, 2022.

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