MNB vice governor essentially announced the start of a tightening cycle this morning

HUNGARY - In Brief 17 May 2021 by Istvan Racz
MNB vice governor Virág spoke this morning. Because of intensifying inflation risks, stemming mainly from the economic impact of post-Covid reopening, 'it is necessary to get prepared for increasing the base rate', he said according to Portfolio.hu. The MNB may raise the base rate, as a precautionary measure, already in June, and it may also raise the 1-week deposit rate at the same time or later on if needed. Whether or not the Bank would specifically aim at unifying the two interest rates Mr. Virág did not mention.Mr. Virág said that the Bank may discontinue its 'emergency instruments' quickly if needed. Sooner or later, this will happen anyway, so that some of the extraordinary policies will be contained gradually and some will be discontinued quickly. But he said that the asset-purchasing program of the Bank will be maintained 'for the time being', with a view to keeping bond yields low. Raising the base rate and possibly the 1-week deposit rate as well is intended to come before 'containing the asset-purchasing program'. Short-term risks will be dealt with by interest rate measures, especially through the adjustment of the 1-week deposit rate.Finally. Mr. Virág said that the MNB intends to maintain its 'data-driven way of operation', so that the decisions of the June rate-setting meeting will be largely determined by the Q2 inflation report, which is due at the same time. The MNB is envisaging a series of adjustment steps rather than a single adjustment step or several measures carried out on the same single occasion.Obviously, the MNB is becoming hawkish in the wake of the unfavourable April inflation data, and also in the light of the most recent good results in...

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