The building of the NBH in Budapest – Photo: wikimedia

Central bank raises base rate to 1.65 percent

Hungarian rate-setters raised the central bank's base rate by 15 basis points to 1.65 percent at a scheduled meeting. The Monetary Council slowed the pace of the central bank's tightening cycle after deciding on 30bp base rate hikes at policy meetings in June, July and August, amid spiking inflation.

The council also decided on Tuesday to raise the O/N deposit rate by 15bp to 0.70 percent and the O/N and one-week collateralised loan rates by 15bp to 2.6 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 and preferential deposits.

Commenting on the central bank’s latest quarterly Inflation Report, the council said inflation was “expected to rise further in the autumn months and to stay above 5 percent during the remainder of the year”.

The gradual pass-through of increased commodity prices and freight costs into industrial goods prices is expected “to be decisive” in the case of underlying inflation, while core inflation is expected to rise “close to 4 percent” during the rest of the year.

The policymakers said the effects of the bank’s tightening cycles “will be clearly felt” in 2022, as inflation starts to fall “from the beginning of 2022”, then returns to the central bank’s 2-4 percent tolerance band “in the second quarter”. CPI is expected “to stabilise around the 3 percent central bank target” in the second half of 2022, they added.

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