A further 15 bps rate hike from the MNB today

HUNGARY - In Brief 21 Sep 2021 by Istvan Racz
The Monetary Council held its September rate-setting meeting today. They also discussed the Q3 inflation report. A summary of the decisions and of vice president Virág's online commentary follows here.The Bank sees inflationary risks still pointing upwards. For the rest of 2021, they expect the headline rate above 5% yoy, with a base-impact-driven November peak of 5.5-6%. (In June, they only said that the headline rate would not return below 4% before end-2021). They expect the headline rate to return to the 3% target only in July 2022, i.e. three month later than they did in their June inflation report (see chart below):They expect GDP growth at 6.5-7% in 2021 (they said 6.2% in June), which implies some deceleration between now and end-year, the latter mainly due to Covid's 4th wave, a source of significant uncertainty. For 2022, they expect 5-6% GDP growth. (We largely agree with both numbers, the latter to be supported greatly by prospective loose fiscal policy before the election.)The Bank raised the base rate and the interest rate corridor further by 15 bps today, the base rate going to 1.65%. They are expressly planning to continue the practice of MONTHLY rate hikes until inflation stabilises at the Bank's target level (see chart above again). For the size of these monthly rate increases, today's rate decision has 'set the direction' (meaning most probably a series of 15 bps rate hikes in the following few months). Responding to a question, Mr. Virág clarified that this last statement refers for the period between now and the next quarterly inflation report, which is due in December.From now on, the Bank will continue to buy government debt with a volume of HUF4...

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