The MNB raised the sterilisation rate by 75 bps at today's tender

HUNGARY - In Brief 03 Mar 2022 by Istvan Racz

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As we wrote the other day, the MNB was unlikely to tolerate the forint's breaking through the EURHUF 380 line without any action. And yes, the Bank raised the 1-week deposit rate by 75 bps to 5.35% at this week's tender, which is held today (on Thursday, as usual). This is in line with what the MNB has said in view of the most recent war events in the neighbourhood, i.e., that the bank will keep its flexibility of action for cases in which the desire to stabilise financial markets require. This is exactly the purpose for which the separate sterilisation rate concept, tied to the 1-week depo instrument currently, was invented.At present, the forint is parking around EURHUF 379, in a moment (we hope a looong moment) of stability, after yesterday's forceful attempts to get over to the wrong side of the EURHUF 380 line.On a related subject, Cabinet Minister Gulyás said that the economy was still growing at a 7% yoy rate (he must have referred to the latest readings of the government's Weekly Economic Index). On inflation, he said that expecting 9% (average) CPI-inflation for this year appears to be an exaggeration for the time being. He said the MNB is currently estimating 5-6% average inflation for 2022 (as opposed to the mid-December quarterly forecast of 4.7-5.1%). Needless to say that the very likely objective of the minister's statement on inflation was to calm down markets and the general public. But this is at least some indication of what investors may expect from the MNB, when its new quarterly inflation forecast is revealed in a few weeks' time.