Base rate, corridor all raised by 100bps today

HUNGARY - In Brief 22 Mar 2022 by Istvan Racz

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The regular monthly rate-setting meeting of the Monetary Council was held today. The Council also discussed the Bank's Q1 inflation report, which made the event especially important under the current exceptional circumstances of the war in Ukraine.The Council raised the base rate, the O/N deposit rate, and the two repo rates equally by 100 bps, and so the repo rates have gone to 7.4%, whereas the base rate and the O/N deposit rate to 4.4%. This means that the repo rates have been raised by a total 200 bps this month, against 125 bps increase in 1-week deposit rate (the effective sterilisation rate) and 100 bps increases in the other two rates.Clearly, the most important decision today was the repo rate hike, which opened up substantial room for further increases of the sterilisation rate (155 bps), and made speculation against the forint even more expensive. Although the MNB never talks about the exchange rate, it is easy to show on actual data that since November at least, the MNB has been defending the EURHUF 370 line by its interest rate measures at all times.Regarding the macro forecast, the Bank lowered its prediction on this year's real GDP growth to 2.5-4.5% from December's 6% figure. The lower end of this range means no increase at all from the Q4 2021 level, as the carryover effect from 2021 is estimated at 2.5%-points. Regarding headline inflation, the new forecast for the average this year is 7.5-9.8%, sharply up from December's 4.7-5.1%. This is an unusually wide forecast range, as required by unusually high risks. In a presentation after the meeting, it was mentioned that between January 3 and February 20, the official Weekly Economic Activity Index indica...