The building of the NBH in Budapest – Photo: wikimedia

Central bank leaves base rate on hold

Hungarian rate-setters on Tuesday left the base rate unchanged at 13 percent. 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 tight monetary conditions would be maintained over a prolonged period so as to ensure that inflation expectations are anchored and the inflation target is achieved in a sustainable manner.

The central bank will continue to focus on sustained shifts in financial market conditions, the Council said, adding that the bank would use the instruments introduced in mid-October until there was a trend improvement in risk perceptions.

The Council said it was necessary to maintain the current level of the base rate for an extended period in order “to achieve the price stability objective over the monetary policy horizon”.

It said the current level of the base rate was adequate to manage fundamental inflation risks, adding that monetary tightening was set to continue with the reduction of interbank liquidity.

The Council reviewed the central bank’s latest quarterly Inflation Report at the meeting and published the main forecasts.

The report puts average annual inflation at 14.5-14.7 percent for 2022 and at 15.0-19.5 percent for 2023.

It said the scrapping of the price caps on fuel and “higher-than-expected food prices have pushed the inflation path significantly higher than expected in September”. It added, at the same time, that from early next year, the slowdown of inflation would be supported by both internal and external factors.

The central bank forecasts GDP growth of 4.5-5.0 percent for 2022 and 0.5-1.5 percent for next year. It puts economic growth at 3.5-4.5 percent for 2024 and at 3.0-4.0 percent for 2025.

At a press conference after the meeting, National Bank of Hungary deputy governor Barnabas Virag said global inflation had peaked and CPI in Hungary could fall into the single digits by the end of 2023.

He said inflation could remain at a “prolonged peak” in the early months of next year.

In response to a question, Virag said inflation in Hungary was set to keep rising in December. He said the scrapping of the price caps on fuel could add 2 percentage points to headline CPI in December and another half a percentage point in January. He added that December inflation could climb to 26-27 percent and suggested CPI could remain that high through the first quarter.

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