On Tuesday, the Governor of the Hungarian National Bank announced that the bank’s 16-month cycle of interest rate hikes, the first of its kind in the European Union and the largest in the EU, has come to an end. However, György Matolcsy warned that the public deficit is unacceptably high and the current account has reached a dangerous risk level, reported Privátbankár.hu.
At its regular interest rate decision meeting on Tuesday, the Hungarian National Bank raised its key interest rate by 125 basis points to 13 percent, above expectations. György Matolcsy, the central bank’s governor, said that from now on the monetary tightening and the fight against inflation will be further intensified by other means.
He stressed that this is necessary because inflation will rise this year and in the first half of next year. He also warned that Hungary faces a number of specific challenges in addition to inflation and the energy price boom: the public deficit is unacceptably high, the current account is in a dangerous risk band, and other risk factors are also present.
Matolcsy pointed out that the process of raising interest rates has now come to a halt, if only because inflation in Hungary, as elsewhere in the world, is self-inflationary, so there is no point in further raising the base rate.
In the meantime, international experience shows that the high inflation phase is likely to be coming to an end.
During the press conference, Matolcsy also sent a message to the government that Hungary needs to accelerate the right transitions: energy efficiency, digitalization, the competitiveness transition, the restructuring of higher education, all to create the development of technology-intensive sectors, and to increase competitiveness and the ability to attract capital.
Barnabas Virág, the central bank’s deputy governor, also said on Tuesday that inflation will rise next month, but from the beginning of 2023, internal inflationary pressures will start to decline, due to tightening demand.
He pointed out that monetary tightening will continue: the focus will be on tightening liquidity.
This process will start from October 1. In this process, the MNB will tie up at least half of the liquidity in one-week deposits in other assets.
Also discussed at the press conference was the fact that inflation could have risen to close to 20% in September, according to central bank data. This is partly due to changes in the rules on utility cost reduction and a rise in food prices due to the drought. However, these two factors are outside the scope of monetary policy.
Meanwhile, the forint started weakly on Wednesday morning against the major currencies compared to the previous evening’s exchange rate. At the time of publication, one euro was 409.7 forints and one US dollar 428 forints.
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