The building of the NBH in Budapest – Photo: wikimedia

Central bank raises base rate by 125 points, signals end of cycle

Hungarian central bank rate-setters on Tuesday raised the base rate by 125 basis points to 13 percent. The rise followed a 100 bp hike at the policy meeting in August.

The Council also decided on Tuesday to raise the O/N deposit rate by 125 basis points to 12.50 percent, and the O/N and one-week collateralised loan rates by 125bp to 15.50 percent.

The O/N deposit rate and the collateralised loan rate mark the bottom and the top, respectively, of the central bank’s interest rate corridor. The base rate is paid on mandatory reserves.

The Council said it has decided to end its cycle of base rate hikes, as interest rate conditions have become sufficiently strict, which it said ensured the achievement of the inflation target. The Council also said it will shift its focus to tightening liquidity and further enhancing monetary transmission, for which the central bank could decide on further measures in the future.

Gyorgy Matolcsy, the governor of the central bank, told a press conference that the end of the Monetary Council’s cycle of base rate hikes did not mark the end of the fight against inflation. The central bank will now continue its monetary tightening by focusing more on other tools at its disposal, he said.

He said inflation was set to keep rising this year before peaking in the first half of next year. It will then start slowly decreasing and approach the central bank’s target rate in 2024, Matolcsy added.

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