The Hungarian central bank has not done so for almost 14 years

Rate setters at Hungary’s central bank (NBH) raised the base rate by 100 basis points to 10.75% at a regular policy meeting on Tuesday.

The Monetary Council of the National Bank of Hungary had raised the base rate by 200 basis points to 9.75% two weeks earlier, taking the extraordinary step in a non-rate-setting meeting to keep the key rate in tandem with the one-week deposit rate. .

The Board also decided on Tuesday to raise the O/N deposit rate by 100 basis points to 10.25% and the O/N and one-week guaranteed lending rates by 100 basis points to 13.25%.

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.

“Continued rising inflation and persistent inflationary risks warrant a decisive continuation of the tightening cycle,” the Board said in a statement released after the meeting.

“The [NBH] also continuously monitors developing risks in financial markets and stands ready to intervene decisively using all instruments in its monetary policy toolkit, if necessary,” the policymakers added.

The Board reiterated that the tightening cycle will continue “until the inflation outlook stabilizes around the central bank’s target in a sustainable manner and inflation risks balance out over the horizon. monetary policy”.

At a press conference after the meeting, BNH Deputy Governor Barnabas Virag said that the tenders on foreign exchange swaps providing liquidity in euros that the BNH launched daily from 8 July to improve monetary policy transmission have been effective, indicating a “significant” increase in FX swap yields. .

Commenting on June inflation – which hit 11.7% year-on-year – Virag said the price revision during the month was “a multiple” of normal levels and noted the impact on headline CPI from food prices. He added that the government’s recent decision to charge households a market price for above-average energy consumption would increase the path of inflation until the measure falls off base in a year.

He estimated second-quarter GDP growth at 6.0%, but pointed to a “sharp slowdown” from June, while noting growing risks of recession in the global economy.

Virag said meeting the inflation target was the central bank’s “priority”, adding that anchoring inflation expectations was of “critical importance”.

In the current environment, the coordination of fiscal and monetary policies is “particularly important”, he said, adding that improving fiscal and current account balances enhances the effectiveness of monetary policy.