Hungarian regulators raised the central bank’s policy rate by 100 basis points

Hungarian rate officials raised the central bank’s base rate by 100 basis points to 4.40% at a monthly policy meeting on Tuesday.

The members of the Monetary Board also decided to raise the O/N deposit rate by 100 basis points to 4.40% and the guaranteed O/N and one-week lending rates by 100 basis points to 7.40% .

The Y/N deposit rate and the secured lending rate mark the bottom and top of the central bank’s “interest rate corridor” respectively. The base rate is paid out of required reserves.

In a statement released after the meeting, the council said the Russian-Ukrainian war had “presented a much higher risk than usual” to the inflation outlook.

The increase in inflation risks justifies a further tightening of monetary conditions.

Therefore, the Monetary Council deems it necessary to continue the general tightening of monetary conditions and to continue the cycle of tightening key rates by a larger increase than before, he added.

The Council said strong negative supply effects were likely to push up inflation in the next quarter, while rising energy and commodity prices would further boost inflation on the expenditure side. . Inflation is expected to decline in the second half of the year, policymakers said, adding that

the short-term path of inflation “will depend on the length of the war, the extent and persistence of sanctions, and government responses”.

The central bank raised its average annual inflation forecast for 2022 to 7.5-9.8%, but said the CPI should return to the tolerance band of +/- 1 percentage point around the medium-term target of 3.0% in the second half of 2023 and achieve the target in the first half of 2024.

The BNH predicts a slowdown in GDP growth to 2.5-4.5% in 2022, depending on the duration of the war and the sanctions policy.

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Laura T. Thrasher