The 1-week depo rate ends the year at 4%

HUNGARY - In Brief 30 Dec 2021 by Istvan Racz

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The MNB held this year's last 1-week deposit tender today. On this occasion, it set the fixed interest rate for the tender at 4%, 20 bps up from last week's level. This was pretty much unsurprising, after exactly the same amount of increase a week ago.In total, the Bank has raised the 1-week deposit rate by 325 bps since the start of the ongoing tightening trend in June. The market does not appear to be highly impressed, though, judged on the basis of today's EURUF 370-371 trading level for the forint. Essentially, there can be no doubt that the rate hike series will be continued as early as next Thursday.Yesterday's bad news, which is likely to add to worries on the market had to do with fiscal policy, the usual suspect in Hungary's case. In its usual end-year budget forecast, the Finance Ministry said that it expects the central government's cash deficit at HUF5147bn of 9.6% of GDP this year, rather than at HUF4024bn or 7.4% of GDP, as they indicated in a report to the EU Commission three months ago. True, this would be down from a cash deficit of 11.6% of GDP in 2020. The Ministry still expects the year's ESA-2010 deficit (the general government's deficit on accrual basis) at 7.5% of GDP this year, down slightly from 8% of GDP in 2020, and the amended deficit target for next year also remains at 4.9% of GDP.The end-2021 gross debt ratio is officially expected at 79.9% of GDP, just slightly down from 80.1% a year ago. This forecast is also unchanged from previous indications, meaning that any increase in the cash deficit forecast will be compensated mainly by extra drawdowns from the government's substantial cash reserves.The big difference between the cash and accru...