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Hungary Central Bank Raises Base Rate by 100 bp

MTI-Hungary Today 2022.04.27.

Hungarian central bank rate-setters hiked the base rate by 100 basis points to 5.40 percent at their regular meeting on Tuesday, while also expanding the two sides of the interest rate corridor by the same ratio.

In a statement released after the meeting, the Council said the war in Ukraine has “posed a much higher risk than usual” to the outlook for inflation.

“Mitigating increased fundamental inflation risks and driving expectations appropriately make it necessary to continue the base rate tightening cycle in the coming period,” the Council said, reiterating its policy position.

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

“If necessary, the [NBH] stands ready to intervene using every element in its monetary policy toolkit to ensure financial market stability,” the rate-setters said.

The Monetary Council will continue the cycle of interest rate hikes until the outlook for inflation stabilises around the central bank target and inflation risks become evenly balanced on the horizon of monetary policy, they added.

The policy makers said the base rate will “gradually catch up” to the level of the central bank’s one-week deposit facility “in the coming months”, adding that the NBH “continues to stand ready to respond quickly and flexibly by setting the interest rate on the one-week deposit instrument if warranted by short-term risks in financial and commodity markets”. 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, NBH governor György Matolcsy said Hungary needed to continue the fight against inflation until it is brought back down to 3 percent. He said inflation could start slowing back down to the central bank tolerance band next year.

Matolcsy said the foundations for another tax reform should be “green, digital and concentrate on turnover-based taxes”.

He said the central bank is drafting a two-year “economic stabilisation” programme that it will recommend to the government in the coming weeks.

In the featured photo illustration: Central Bank governor György Matolcsy. Photo by Szilárd Koszticsák/MTI

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