The MNB raised the base rate & interest rate corridor, ended quantitative easing

HUNGARY - In Brief 14 Dec 2021 by Istvan Racz

---

The Monetary Council held its regular monthly rate-setting meeting on December 14, slightly earlier within the month than usual, because of the upcoming holiday season. Essentially, it did three things: it discussed the quarterly inflation forecast, took interest rate decisions and discussed policies with regard to quantitative easing. Following the meeting, Mr. Virág, the Bank's vice governor responsible for monetary policy, informed the public in detail, by way of an online press conference.Regarding the inflation report: The Bank sees 2022 GDP growth at 4-5%, after 6.3-6.5% this year. Importantly, next year's growth will be led by domestic demand, while industry and exports are likely to remain relatively weak, just as currently. Inflationary risks are still pointed upwards. The headline inflation rate probably peaked in November, and it should slowly descend from here onwards, but it is likely to fall back to the Bank's tolerance range no sooner than Q4 2022, if all goes well. Core inflation prospects are worse than this: the core rate will likely rise to 6% in H1 2022, and fall back to the tolerance range no sooner than in H1 2023. Inflationary expectations are currently rising.Regarding interest rates: The Bank raised the base rate to 2.4% (+30 bps), the O/N deposit rate to the same 2.4% (+80 bps), and the O/N and 1-week repo rate was raised to 4.4% (+30 bps). Thereby the interest rate corridor has been narrowed, and the base rate has been indirectly redefined as the bottom rate of the corridor. But the latter was most probably unintentional and was not presented as a new rule. Instead, Mr. Virág stressed that even though at the end of the current interest rate c...