The building of the NBH in Budapest – Photo: wikimedia

Matolcsy: Monetary tightening to continue in 2022

The cycle of interest rate raises started in June will continue in 2022, as long as it is necessary to bring the inflationary outlook back down close to the 3 percent target in a sustainable manner, central bank governor Gyorgy Matolcsy said in an interview with daily Magyar Nemzet published on Monday.

Matolcsy noted that the NBH’s one-week depo rate is currently above the central bank’s base rate but by the first half of 2022, the base rate will catch up to the one-week depo rate.

He said the central bank had begun the fight to restore price stability in time; the next step must be to restore fiscal balance.

The central bank governor welcomed government moves taken in recent weeks concerning this year’s and next year’s budget, adding that the process needs to be taken forward and a deficit of below 3 percent must be targeted as soon as possible.

In an economy moving on a converging path, instead of indebtedness, sources of sustainable growth need to be found in boosting productivity, institutional reforms, and a green and digital transformation, Matolcsy said.

In response to a question on the forint weakening, Matolcsy said that the central bank’s proposals to boost competitiveness and to restore the balance in recent years had all been aimed at “the appreciation of Hungary”.

“In order to break down inflation and to anchor price increases again in the range of around 3 percent, we must use all channels of monetary transmission,” he said. “However, exchange rate changes are not an automatism. It is a multi-factor process. Emerging economies are currently operating in strong headwinds, and the global risk aversion is working against us. But it is common experience that if a country does its homework, it will have results over time”, Matolcsy said.

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