Sterilisation rate raised by another 50bps today

HUNGARY - In Brief 10 Mar 2022 by Istvan Racz

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At today's usual weekly tender, the 1-week deposit rate was raised to 5.85%, using the authorisation provided by Tuesday's Monetary Council decision to raise the upper end of the interest rate corridor by 100 bps, to 6.4%. As well-known to the reader, the corridor ceiling is actually the O/N and 1-week repo rate, and increasing it on Tuesday helped in itself, by making shorts set up against the forint more expensive. As a result, the forint strengthened back by 22 units in EURHUF terms to the 378 level yesterday. But missing today's opportunity to raise the deposit rate could have broken this positive mood again. This is shown very well by the fact that some 1% worth of forint weakening against the euro took place immediately after the announcement of the new deposit rate today. In our view, the main scenario for now appears to be that the Bank may use the other half of its recently added room for deposit rate hikes (meaning another 50 bps hike) next Thursday, and the following week's tender will be held already after the March rate-setting meeting on March 22, when the Q1 inflation forecast is due and the MNB's updated policy line is also likely to be announced.Just how serious is the underlying exchange rate / inflation problem is shown well by the latest development of the administrative price freeze of fuels (= the official maximisation of two basic types of fuels at HUF480 per litre at petrol stations). From tomorrow, the price of fuel for those who buy directly from wholesalers and not at petrol stations will be raised further, with the result that the average of these prices (essentially the market prices) and the HUF480 maximum for regulated products will rise ...