MNB base rate up 50 bps today, expect +30 bps in the 1-week deposit rate on Thursday

HUNGARY - In Brief 22 Feb 2022 by Istvan Racz
At its regular monthly rate-setting meeting, the Monetary Council raised the base rate by another 50 bps, the same amount as in January, to 3.4%. The interest rate corridor was adjusted upwards accordingly, to 3.4-5.4%.Vice governor Virág explained the Council's view in a now usual YouTube appearance after the meeting. Most importantly, he said that the Council expects the headline rate of CPI-inflation to rise again in February, exceeding 8% yoy and possibly reaching 8.5% yoy. We would add that this is a major deviation from the Bank's December 2021 inflation forecast, which predicted the headline rate on a decreasing trend, at 6.5% yoy in February and at 6.4% on average in Q1. The Council concluded that inflation is now in the phase of pass-through from producer prices into consumer prices (a correct observation, we think), and the MNB's aim is to have a major impact in the following phase, when inflation is predominantly fuelled in a self-supporting, cyclical way.The Council now sees the point where inflation may start to decrease and also the end of the current tightening trend significantly further away than earlier. For us, this means that the tightening trend may well extend into 2023. Other than this, the Bank's concept and objective behind tightening remains unchanged. The Council does not intend to accelerate its interest rate increases, and it still aims at progressively closing and eventually removing the gap between the base rate and the 1-week deposit rate. As Mr. Virág put it, responding to a question, systematic progress and calculability is an important aspect in the Council's view. This indeed means that if inflation is higher, the tightening trend wi...

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