Central Bank Hikes Base Rate by 50 Bps to 2.9%

  • 26 Jan 2022 8:58 AM
  • Hungary Matters
Central Bank Hikes Base Rate by 50 Bps to 2.9%
Hungarian central bank (NBH) rate-setters, at a regular policy meeting on Tuesday, hiked the base rate by 50 basis points to 2.9%.

The members of the Monetary Council also hiked the interest rate corridor by the same degree. In a statement released after the meeting, the Council said risks to inflation “continue to be on the upside”, adding that the risk of the central bank’s alternative scenario assuming a higher external inflation environment “has increased”.

“Persistently high commodity, crop, food and energy prices and elevated international freight costs continue to point to sustained external inflationary pressures,” the Council said.

“At the same time, the tight labour market, coupled with accelerating wage growth and a higher inflation environment, may lead to a further rise in inflation expectations and an increase in second-round inflation risks,” the policymakers added.

“Mitigating second-round inflation risks and driving expectations appropriately have necessitated the continuation of the base rate tightening cycle on a monthly basis and in greater increments than in December.

As a result, the base rate will catch up gradually to the one-week deposit rate evolving in the coming months,” the Council said.

The one-week depo rate moved in tandem with the base rate from June until November, when the Council decided the central bank must be allowed to set it over the base rate to respond to an increase in short-term risks in financial and commodity markets “quickly and flexibly”. The rate now stands at 4.00%.

At a press conference after the meeting, NBH deputy governor Barnabás Virág said the central bank was prepared to raise the one-week deposit rate further. He added that the base rate has “started to catch up” with the one-week deposit rate. He said the base rate and the one-week deposit rate “could converge in the course of the first half of the year”.

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