Policymakers raise base rate 100 bp to 4.4%

MNB

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The Monetary Council of the National Bank of Hungary (MNB) decided to raise the central bank base rate by 100 bp to 4.4% at a monthly policy meeting on Tuesday, according to a report by state news wire MTI.

The rate rise was double the scale of the one at the policy meeting a month earlier, which took place days before the outbreak of the war in Ukraine.

The council also decided on Tuesday to raise the O/N deposit rate by 100 bp to 4.4% and the O/N and one-week collateralized loan rates by 100 bp to 7.4%.

The O/N deposit rate and the collateralized 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.

MNB puts 2022 CPI at 7.5-9.8%

In a statement released after the meeting, the council said "strong negative supply effects" are likely to raise inflation in the coming quarter, while higher energy and commodity prices boost inflation further on the expenditure side. Inflation is likely to decline in the second half of the year, the policymakers said, adding that the short-term path of inflation "will depend on the duration of the war, the extent, and persistence of sanctions, as well as government responses".

The central bank raised its average annual inflation forecast for 2022 to 7.5-9.8%, but said CPI is expected to return to the +/-1pp tolerance band around the mid-term 3% target in the second half of 2023 and reach the target in the first half of 2024 on the back of "the fading of the first-round effects of the war and the sanctions, the decrease in external inflationary effects" and "the central bank's proactive measures".

MNBaugurs a slowdown in GDP growth to 2.5-4.5% in 2022, "depending on the duration of the war and the policy of sanctions".

The inflation and GDP projections are from MNB's latest quarterly Inflation Report which will be published in full on Thursday.

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