The 1-week deposit rate went to 3.6% today, just as promised

HUNGARY - In Brief 16 Dec 2021 by Istvan Racz

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Today's 1-week deposit tender has brought about to the second MNB interest rate decision this week, which is kind of a nice performance in itself.This time around, the 1-week deposit rate, which is now the effective sterilisation rate, rose by 30 bps, to 3.6%. This was no surprise at all, after Mr. Virág's online presentation two days ago, when he said after the Council's rate-setting meeting, at which the base rate was raised by 30 bps, that the current time was not the one in which it would be a correct move to lessen the difference between the base rate and the 1-week depo rate, and so it was quite likely that the latter rate would be raised also by 30 bps at the next tender. And here we go, indeed.So, we could say that there were at least two good reasons to raise the 1-week depo rate today:1. because the Monetary Council essentially decided this way, in view of the current and prospective state of inflation and real interest rates; and2. because the forint keeps being under pressure, with EURHUF beleaguering the 370 line, which is no good for the MNB, as it means nominal yoy forint depreciation, adding to the inflationary pressure generated by skyrocketing import prices.By the way, the MNB took in HUF7508bn of free liquidity from banks at today's deposit tender, HUF686bn less than last week. Last Thursday, they also pulled in an additional HUF588bn of liquidity, in exchange for which they gave EUR1.61bn in a reverse FX tender, which is set to expire on January 6, 2022.