The MNB indeed raised the base rate by 50bps today

HUNGARY - In Brief 31 May 2022 by Istvan Racz

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The base rate and the components of the interest rate corridor have been raised all by 50 bps, the base rate and the floor of the corridor to 5.9%, whereas the ceiling of the corridor to 8.9%. The MNB has said that it is going to raise the sterilisation rate by 30 bps, to 6.75%, on Thursday. Moreover, it is preparing to raise both rates further by the same amounts each month in the foreseeable future. The MNB still expects the unification of the base rate and the sterilisation rate at some point in H2 2022. It still intends to continue rate hikes until prospective inflation has stabilised around the 3% medium-term target in a sustainable way. The MNB says it has no idea when and at what level of the interest rates this can be achieved, but it is convinced that rate hikes will have to be continued at least in H2 this year. Should any major market instability occur, the Bank would react flexibly, with all instruments available to it. All this means that in fact, the MNB has not reduced the pace of interest rate increases, except halving the size of the monthly increase in the base rate, which on the other hand is currently ineffective. The currency market's initial reaction was not particularly enthusiastic, as the MNB did not show any intention to robustly counteract the forint's most recent weakness. Yet the forint weakened just a little bit during the day, possibly as a positive reaction to the oil embargo decision within the EU. The latter helped the Hungarian stock market today, especially MOL, the main domestic oil and gas company. As part of his presentation after the Monetary Council's meeting today, vice governor Virág said that the authorities' weekly economic ...