The Hungarian central bank has significantly raised its key rate to reduce inflation!

Hungarian central bank rate setters raised the base rate by 100 basis points to 5.40% at their regular meeting on Tuesday, while widening both sides of the interest rate corridor according to the same ratio.

In a statement after the meeting, the Council said the war in Ukraine had “presented a much higher risk than usual” to the inflation outlook. “The mitigating risks of heightened core inflation and conducting expectations appropriately make it necessary to continue the cycle of base rate tightening in the period ahead,” the Board said, reiterating its policy stance.

The Board also affirmed the central bank’s commitment to ensuring market stability, in addition to its primary objective of price stability.

“If necessary, the [NBH] is ready to intervene using all elements of its monetary policy toolkit to ensure financial market stability,” the rate setters said.

The Monetary Board will continue the cycle of interest rate hikes until the inflation outlook stabilizes around the central bank’s target and inflation risks balance out over the inflation horizon. monetary policy, they added.

Policymakers said the base rate will “gradually catch up” with the level of the central bank’s one-week deposit facility “in the coming months,” adding that the BNH “continues to stand ready to react quickly and flexibly in setting the interest rate”. rate on the one-week deposit instrument if the short-term risks in the financial and commodity markets justify it”. The Council noted that the central bank “normally determines” the one-week deposit rate “on a monthly basis.”

Addressing an online press conference after the meeting, BNH Governor György Matolcsy said Hungary must continue to fight inflation until it is brought down to 3%. He said inflation could start to slow towards the central bank’s tolerance band next year.

Matolcsy said the foundations for further tax reform should be “green, digital and focus on turnover-based taxes”. He said the central bank was drawing up a two-year “economic stabilisation” program which it will recommend to the government in the coming weeks.

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Source: MTI

Laura T. Thrasher