One-week depo rate up again, MNB governor may have preempted the mid-December statement

HUNGARY - In Brief 02 Dec 2021 by Istvan Racz

---

Quite a lot is happening in the field of MNB policy again.First, the MNB has just set the 1-week deposit rate at 3.1% for this week's tender this morning, raising 20 bps from last weeks level. This followed Tuesday's decision to raise the interest rate corridor to 1.6-4.1%, preparing the ground for today's move.Second, MNB governor Matolcsy spoke to a parliamentary committee yesterday, and said a few things which sounded as if he were giving away parts of the Monetary Council's prospective mid-December statement, the one that is due after the Council's monthly rate-setting meeting, also discussing the quarterly inflation report, on December 14.He mainly said that average headline CPI-inflation was likely to be around 5% both this year and in 2022. For next year, he said the Bank's forecast range is currently 4.7-5.1%. On prospective policy decisions, he said that the MNB is coming close to ending its asset-purchasing program, referring to its direct purchasing of government bonds. He added that the Council will look into how much its program to buy corporate bonds is compatible with the existing tightening course.Regarding inflation, the average headline rate for 2021 indeed looks like ending up at 5%, with 6.3% yoy in December in our view, and we simply cannot be markedly wrong, being so close to the end of the year. The interesting point is Mr. Matolcsy's new forecast for 2022 (see above), which is moving up from the 3.4-3.8% range predicted by the MNB in its end-September inflation report. The Bank's new forecast range for the annual average rate fits to a roughly 4% end-2022 yoy rate, which is just the upper end of the Bank's tolerance range. This scenario seems to...