The MNB sent out a strong message, raised the base rate above expectation today

HUNGARY - In Brief 25 Jan 2022 by Istvan Racz
The Monetary Council raised the base rate by 50 bps, to 2.9% today, more than the 30 bps hike expected by the broad analyst consensus. Simultaneously, the interest rate corridor was also adjusted upwards by 50 bps, to 2.9-4.9%, creating further room to increase the 1-week deposit rate from the current 4% level.Following the announcement of the decision, vice governor Virág said the following in his usual YouTube presentation:- The Council noted the unusually big upward price adjustments, and the steep rise by core inflation, in December. It sees inflation risks still pointing upwards, and longer-term inflationary pressures taking over from short-term ones. Consumer inflation has reached a plateau, and the price adjustments of the first few months of the year will decide how quickly the decrease of the headline rate can start to descend from this plateau. At the peak, core inflation, at 6.4% yoy in December, may well reach 7%. Commodity and financial market risks have eased somewhat lately, but remain high, with great volatility.- The Council believes that the current tightening course needs to be continued. The conditions for eventually ending this course have not changed from the earlier definition. Today's rate measure will be followed by an increase of the 1-week deposit rate on Thursday. From here onwards, the Council expects monthly adjustments of the 1-week deposit rate as well, but it is ready to act more frequently if market conditions require so. Importantly, the Council believes that the difference between the base rate and the 1-week deposit rate needs to be progressively reduced from this point onwards, and it expects the two rates to be unified again by th...

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