Base Rate Raised to 13% by Hungarian Central Bank

  • 28 Sep 2022 8:35 AM
Base Rate Raised to 13% by Hungarian Central Bank
Hungarian central bank rate-setters on Tuesday raised the base rate by 125 basis points to 13%. The rise followed a 100 bp hike at the policy meeting in August.

The Council also decided on Tuesday to raise the O/N deposit rate by 125 basis points to 12.50%, and the O/N and one-week collateralised loan rates by 125bp to 15.50%.

The O/N deposit rate and the collateralised loan rate mark the bottom and the top, respectively, of the central bank’s interest rate corridor. The base rate is paid on mandatory reserves.

In a statement issued after the meeting, the Council said it has decided to end its cycle of base rate hikes, as interest rate conditions have become sufficiently strict, which it said ensured the achievement of the inflation target.

The Council also said it will shift its focus to tightening liquidity and further enhancing monetary transmission, for which the central bank could decide on further measures in the future.

The Council noted that measures decided on at their August policy meeting — raising the mandatory reserve ratio and launching regular discount bill auctions and a long-term deposit facility — to take effect from October would “significantly reduce” forint liquidity.

The central bank will also improve monetary transmission with increases in swap yields using daily FX swap tenders providing euro liquidity, the Council said. The measures will tighten monetary conditions further and cause the disinflationary effect of earlier base rate hikes to “increase considerably”, they added.

Meanwhile, the Council said the drought, soaring energy prices and changes in official energy price regulations had caused a short-term rise in inflation. The extension of the price caps until Jan 1, 2023 “is likely to restrain price increases until the end of the year”, it added.

The Council put average annual inflation in 2022 at 13.5-14.5%. It said inflation is expected to decrease slowly in the first half of 2023, and then more significantly from the middle of the year. Inflation is expected to return to the central bank tolerance band in the first half of 2024, the Council added.

György Matolcsy, the governor of the central bank, told a press conference that the end of the Monetary Council’s cycle of base rate hikes did not mark the end of the fight against inflation. The central bank will now continue its monetary tightening by focusing more on other tools at its disposal, he said.

He said inflation was set to keep rising this year before peaking in the first half of next year. It will then start slowly decreasing and approach the central bank’s target rate in 2024, Matolcsy added.

MTI Photo: Szilárd Koszticsák

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