The building of the NBH in Budapest – Photo: wikimedia

Central bank keeps base rate on hold

Hungarian rate-setters decided to keep the base rate on hold at 13 percent at a regular policy meeting on Tuesday, the first such meeting this year.

The Monetary Council also decided at its policy meeting to keep the central bank’s interest rate corridor unchanged.

The decision was in line with expectations.

In a statement released after the meeting, the Council said it was necessary to maintain tight monetary conditions over a prolonged period, “which will ensure that inflation expectations are anchored and the inflation target is achieved in a sustainable manner”.

The Council noted that economic growth had slowed in the recent period that several countries had seen their GDP decline. It said that the protracted war between Russia and Ukraine, the energy crisis in Europe and the generally rising interest rate environment would continue to cause uncertainty.

They said investor sentiment had improved slightly since the last interest rate decision. “Risk appetite has been mainly influenced by macroeconomic data releases, the economic outlook and expectations related to the monetary policy of the world’s leading central banks,” the statement said.

The Council said the growth rate this year was likely to be slowed by both domestic and external demand factors. “The decline in real incomes, rising corporate costs, delayed public investment and the stricter interest rate environment all have a restraining impact on domestic demand,” they said. Despite subdued global economic activity, Hungary’s foreign market share is expected to increase due to growing domestic export capacities, which the Council said was also supported by the dynamic expansion of battery production.

Inflation is seen decreasing slowly in the first half of 2023, and then more significantly from the middle of the year, the Council said. It said CPI will return to the central bank tolerance band in 2024.

According to its December Inflation Report, the central bank forecasts GDP growth of 4.5-5.0 percent for 2022 and 0.5-1.5 percent for 2023. It puts economic growth at 3.5-4.5 percent for 2024 and at 3.0-4.0 percent for 2025.

Leave a Reply