Hungary Monetary Policy December 2022

At its 20 December meeting, the Monetary Council of the Hungarian National Bank (MNB) left its base rate unchanged at 13.00% for the third consecutive meeting. Moreover, the Bank left the overnight deposit rate and the overnight collateralized lending rate unchanged at 12.50% and 25.00%, respectively. However, the MNB added that monetary tightening is still being carried out through the reduction of interbank forint liquidity.

The Bank reiterated that it expects to keep interest rates stable for a prolonged period of time following an aggressive tightening cycle to anchor inflation expectations. Together with cooling external price pressures and softer domestic demand, this should bring inflation within the Bank’s target range of 3.0% plus or minus one percentage point in 2024. That said, headline inflation accelerated to 22.5% in November from 21.1% in October, moving further above the Bank’s target band. A faster increase in food prices and the expiry of the price cap on fuels have fueled inflationary pressures recently. The MNB expects inflation to decline only gradually in H1 2023 and more significantly in the second half of next year.

Looking ahead, the Bank sees significant risks to inflation. Upside risks stem mainly from persistently high energy prices due to the war in Ukraine, while downside risks are chiefly posed by slowing global and domestic economies, and lower energy and other commodity prices. The Bank announced that it would keep monetary conditions tight for a prolonged period until “inflation expectations are anchored and the inflation target is achieved in a sustainable manner”.

Commenting on the release, János Nagy, analyst at Erste, stated:

“All-in-all today’s decisions were in line with the expectations, the extremely tight monetary conditions are maintained. […] In our view from the key factors the above which could improve in the short run is the situation of the current account due to the shrinking domestic demand. Besides we are still waiting to see the turning point of inflation which could happen in the spring, hopefully.”

The next monetary policy meeting is scheduled for 24 January.

FocusEconomics Consensus Forecast panelists are still assessing the latest.