The rapid convergence of the base rate and the one-week deposit rate will be on the agenda at the next Monetary Council meeting on July 12th, the central bank told MTI after announcing a 200 basis point increase in the one-week deposit facility to 9.75%.
It was explained that the primary objective of the Hungarian National Bank (MNB) is to achieve and maintain price stability. The situation in the financial markets in recent days increases the risk of persistent inflationary effects, and clearly threatens price stability. The impact of adverse money market movements increases the risk that high inflation will persist for longer than previously expected. In the event of persistently high inflation, the current higher price dynamics could become embedded in the expectations of economic agents, making it more difficult to ensure price stability, they wrote.
To avoid this risk, it became necessary to tighten monetary conditions further, and the MNB set the one-week deposit rate at 9.75%, with an increase of 200 basis points.
In the one-week deposit tender announced today, the MNB accepted bids of more than HUF 9,500 billion. The liquidity tied up in the one-week instrument has increased significantly from the previous week’s level of 7,263 billion forints,”
It is a priority for the central bank to ensure that short rates in all submarkets, especially the swap market, and in all periods are in line with the short rates considered optimal by the Monetary Council. To this end, the MNB will start using swap tenders to provide foreign exchange liquidity within the quarter. The first tender will be held by the MNB on Friday July 8, 2022, with a one-day maturity, and the parameters of the tender will be published by the central bank at 9 a.m. Through an active market presence, the MNB will strengthen the efficiency of monetary transmission, thereby supporting the achievement and maintenance of price stability, the statement said.
They added that the MNB will continue to monitor the evolution of financial market risks and is ready to intervene with all elements in their toolkit to achieve and maintain price stability, if necessary.
In a statement sent to MTI, Gergely Suppan, senior analyst at Magyar Bankholding, wrote that the one-week deposit rate and the base rate will rise above 10 percent in the coming months due to the expected continuation of the interest rate hike cycle, while forward rates are expected to reach 13 percent in six months.
The fact that the Hungarian national currency, the forint strengthened on Thursday, falling below 403 forints to one euro by the end of the day, was also due to the MNB’s announcement in the afternoon.
At 7 pm on Thursday, the euro fell to 402.85 forints from 408.44 forints at 7 am. The euro traded between 402.40 and 415.43 forints during the day.
The Swiss franc weakened to 407.28 from 412.90 forints, while the dollar fell to 396.8 forints from 399.96 forints.
The euro continued to weaken against the dollar, falling to $1.0158 from $1.0208 in the morning.
Featured image via Noémi Bruzák/MTI