Hungary raises rate 8th time, will continue with hikes

     Hungary's central bank raised its benchmark interest rates for the 8th month in row and said it "will continue the cycle of interest rate hikes until the outlook for inflation stabilizes around the central bank target and inflation risks become evenly balanced on the horizon of monetary policy."
     The National Bank of Hungary, or Magyar Nemzeti Bank (MNB) in Hungarian, raised its base rate by a further 50 basis points to 2.90 percent and has now raised it 2.30 percentage points since it began a monetary tightening cycle in June last year.
     MNB also raised its other key rates by 50 basis points, putting the overnight deposit rate at 2.90 percent, the overnight and one-week collateralized lending rates at 4.90 percent.
     "Inflation risks warrant a further tightening of monetary conditions," the central bank's monetary council said, adding mitigating second-round inflation risks and driving expectations have necessitated continuing the rate hike cycle and in greater increments than in December, when it was raised 30 basis points.
      In addition to its base rate, which is decided monthly, MNB uses the weekly tender for its one-week deposit facility to respond quickly to short-term changes in financial market conditions and has raised this rate seven times since mid-November in response to the rise in inflation.
     At the last tender on Thursday, Jan. 20, the one-week deposit rate was maintained at 4.0 percent for the third week in a row.
     Although MNB said risks in financial markets had eased since December, it added the sharp increase in core inflation signaled an increase in "persistent inflationary pressures" and the base rate should catch up to the level of the one-week deposit rate in coming months.
     "Accordingly, the council will continue the cycle of base rate hikes at a monthly frequency and in larger increments than in December," with MNB adding it will also raise the one-week deposit rate.

     Hungary's headline inflation rate was steady at 7.4 percent in December from November - but the highest since 2007 - while the core inflation rate rose to 6.4 percent from 5.3 percent.

     The central bank targets inflation of 2.0 to 4.0 percent around a 3.0 percent midpoint.

     While headline inflation may have peaked in December, the central bank said it may begin to decline later than it had expected and core inflation is expected to pick up in coming months as companies reprice their goods amid strong demand to reflect higher commodity prices and wages.

     Hungary's economy grew throughout last year and MNB said 2021 growth may have exceeded the 6.3-6.5 percent level it projected in December as data suggest activity in the fourth quarter was strong.

     For 2022 the central bank forecast growth of 4.0-5.0 percent as domestic demand offsets the negative impact of disruptions in International production chains and rising commodity, crop and energy prices.

     An increase in the minimum wage during a tight labor market will also maintain rapid wage growth and in the second half of this year exports are expected to rebound as external markets and supply chains recover.

    

Hungary raises rate 7th time and sees further hikes

     Hungary's central bank raised its key interest rates for the 7th time and reiterated it will "continue the cycle of interest rate hikes until the outlook for inflation stabilizes around the central bank target in a sustainable manner and inflation risks become evenly balanced on the horizon of monetary policy."
     The National Bank of Hungary (NBH), or Magyar Nemzeti Bank in Hungarian, raised its base rate by another 30 basis points to 2.40 percent and has now raised it 1.80 percentage points this year following rate hikes every month since June. 

      "In order to avoid second-round inflationary effects and to property anchor expectations, the Monetary Council continues the tightening of monetary conditions," the central bank said.
      NBH also raised both its overnight collateralized loan rate and the one-week loan rate by 30 basis points to 4.40 percent to 2.0 percentage points above the base rate, while the overnight deposit rate was set at the base rate of 2.40 percent, an increase of 80 points.

      "In the persistently changed inflation environment, the Monetary Council intends to drive expectations appropriately by continuing the cycle of base rate hikes at a monthly frequency and in a predictable manner," the central bank said.

      With yields on bonds rising due to the increase in the central bank's rates and an expected decline in inflation, NBH expects real interest rates to rise in coming months and will continue to respond to any rise in short-term risks by setting the one-week deposit rate persistently above the base rate at weekly tenders.

      At last week's tender on Dec. 9 the one-week deposit rate was raised another 20 basis points to 3.3 percent, boosting the increase since mid-November to 150 points.

       In addition to raising interest rates to temper the rise in inflation and inflation expectations, NBH has also been phasing out other monetary tools used to support economic activity during the COVID-19 pandemic, such as the Funding for Growth Go! scheme and long-term collateralized lending facility, and lowering its weekly purchases of government securities.

     Today the bank's monetary council decided to close its Bond Funding for Growth Scheme and will not purchase any more corporate bonds, saying the banking sector now has ample liquidity and a strong capital position to it can satisfy the corporate sectors need for funding.

      NBH also decided to end its purchase of government securities but said it would continue to monitor the bond market and be ready to intervene with occasional purchases to maintain its stability.

     "Accordingly, the Bank will stop purchasing bonds," the bank said, adding it will hold government securities until they mature.

    Hungary's inflation rate rose to 7.4 percent in November from 6.5 percent in October and NBH projected an average rise in 2021 of 5.1 percent, well above the bank's target range of 2.0 to 4.0 percent, around a 3.0 percent midpoint.

     NBH, however, expects inflation to have peaked in November and to slowly fall from December before returning to the target range in the fourth quarter of 2022 and then reaching the 3 percent target in the first half of 2023.

     "Hungarian economic growth has continued, but its dynamics have slowed," NBH said, estimating growth this year of 6.3-6.5 percent and 4.0-5.0 percent in 2022.

Hungary tightens monetary conditions further

     Hungary's central bank tightened its monetary conditions further by raising the interest rate on its overnight deposit, overnight lending and one-week lending facilities in response to what is said was the recent rise of risks in financial and commodity markets.
     The National Bank of Hungary's (NBH) monetary council said it had not discussed changing the base rate today but decided to widen the bank's interest rate corridor and make it asymmetrical upwards as "an integral part of the strategy of the new phase of monetary policy."

      The monetary council meets twice a month, with only the second meeting of the month designated as a policy meeting when the main policy rate is typically decided. 

      Although today's meeting was scheduled as a non-monetary policy meeting, the council still raised the overnight deposit rate by 45 basis points to 1.60 percent, to be 50 points below the bank's base rate that was last raised to 2.10 percent on Nov. 16.

      Both the overnight and one-week collateralized loan rates were raised 105 basis points to 4.10 percent and are now 2.0 percentage points above the base rate instead of being 95 points above it.

      NBH has raised its base rate six times and by a total of 1.50 percentage points since June as it continues to tighten monetary conditions in response to the rise in inflation and to help anchor inflation expectations and thus reduce the risk of second-round effects.

      Hungary's inflation rate rose to a faster-than-expected 6.5 percent in October from 5.5 percent in September for the highest rate since September 2012 and well above the upper limit of its target range of 2.0 to 4.0 percent around a 3.0 percent midpoint.

      In its statement, the central bank referred to its press release on Nov. 16 in which it noted the rise in short-term risks in financial markets and its intention to respond to these risks quickly and to the extent necessary.

      The central bank typically responds to a change in market conditions through the one-week deposit rate and today it said the rate on this had risen above the base rate in recent weeks.

      The one-week deposit rate is set at weekly tenders on Thursdays, and the rate has risen by a total of 1.10 percentage points to 2.9 percent since then Nov. 16, close to the upper end of its earlier interest rate corridor.

     "In order to achieve and maintain price stability, it is highly important that the central bank has the appropriate monetary policy room for manoeuvre," the bank said, adding this would allow it to effectively manage risks from a rapidly changing environment.

Hungary raises rate 5th time on upside risks to inflation

      Hungary's central bank raised its key interest rate for the fifth consecutive month and reiterated that it "will continue the cycle of interest rate hikes until the outlook for inflation stabilizes around the central bank target in a sustainable manner and inflation risks become evenly balanced on the horizon of monetary policy."
     The National Bank of Hungary, or Magyar Nemzeti Bank (MNB) in Hungarian, raised its base rate by another 15 basis points to 1.80 percent and has now raised it 1.20 percentage points following rate hikes in June, July, August and September. 

    "In the decision-makers' assessment, the inflation outlook continues to be surrounded by upside risks which might prove to be more persistent than earlier expected," the bank said.

     The rate hike was signaled by the bank with its deputy governor, Barnabas Virag, on Oct. 1 saying the bank would raise rates in 15-basis-point steps in coming months as inflationary pressures were growing.

     Against the backdrop of a global economic recovery and rising commodity prices, that are now spilling over to a wide range of consumer prices, the central bank expects inflation to rise faster in coming months that it forecast in September, with core inflation of around 4 percent for the remainder of this year.

     In September Hungary's headline inflation rate rose to 5.5 percent, the highest since October 2012, and core inflation rose to 4.0 percent from 3.6 percent in August.

     "Rises in commodity prices and energy prices as well as international freight costs continue to point to a higher external inflationary environment which is more persistent than previously expected," MNB said, adding dynamic growth in wages also carries upside risks to inflation.

     However, the bank reiterated its view from the September outlook that its monetary tightening cycle will be felt early next year and inflation will start to ease. By the second quarter, inflation will return to its tolerance range of 2.0 to 4.0 percent before stabilizing around the 3.0 percent target in the second half.

     In addition to its base rate, MNB also raised its other main interest rates by 15 basis points, putting the overnight deposit rate at 0.85 percent, the overnight collateralized lending rate at 2.75 percent and the one-week lending rate at 2.75 percent.

     Prior to the outbreak of the COVID-19 pandemic, the central bank had kept its main rate steady at 0.90 percent from May 2016 but in March last year MNB began easing its policy stance by releasing banks from reserve requirements and then embarked on quantitative easing by purchasing government securities and mortgage bonds.
     In June and July the central bank then cut its rate twice in quick succession by a total of 30 basis points.

     Hungary has bounced back fast from the pandemic and the central bank said the recovery continued in the third quarter, reiterating its forecast for growth this year of 6.5 to 7.0 percent and between 5 and 6 percent in 2022.

Hungary raises rate 4th time but slows tightening pace

     Hungary's central bank raised its key interest rates for the fourth time in a row but slowed the pace of monetary tightening slightly, saying the fourth wave of the COVID-19 pandemic has raised the risks to the economic recovery and inflation is seen easing by the start of next year.

     The National Bank of Hungary (NBH) raised its central bank rate by another 15 basis points to 1.65 percent and has now raised it by 1.05 percentage points this year following earlier hikes of 30 basis points each in the months of June, July and August.

     The central bank, or Magyar Nemzeti Bank (MNB) in Hungarian, also raised its other main rates that are linked to the base rate, by 15 basis points. 

     The overnight deposit rate is now 0.70 percent, the overnight collateralized lending rate 2.60 percent and the one-week collateralized lending rate at 2.60 percent.

     "The Monetary Council will continue the cycle of interest hikes until the outlook for inflation stabilizes around the central bank target in a sustainable manner and inflation risks become evenly balanced on the horizon of monetary policy," NBH said, reiterating its recent guidance.

     The last time NBH's key rate was at 1.65 percent was in May 2015 when the central bank was in the later stages of an monetary easing cycle that began in August 2012, when the rate was cut from 7.0 percent, and ended in May 2016 when the rate was cut to 0.90 percent.

     Between May 2016 and June 2020 the rate was kept steady before it was cut in two consecutive months to 0.60 percent during the height of the COVID-19 pandemic.

     But with the economy rebounding swiftly from restrictions during the pandemic and inflationary pressures rising, NBH turned hawkish in June this year to prevent inflation expectations from detaching from its target.

     In addition to raising its rate in June - the first rate hike in a decade - the central bank also began phasing out the monetary tools used to support economic activity during the COVID crises, such as the Funding for Growth Go! scheme and a long-term collateralized lending facility.

     In August the central bank began gradually withdrawing its purchases of government securities - known as quantitative easing - and lowered the weekly amount of purchases by 10 billion forint to 50 billion starting Aug. 23.

     Today the central bank decided to lower the weekly amount by another 10 billion forint to 40 billion starting Sept. 27 and reiterated it was not planning to sell any of the bonds on its balance sheet but hold them to maturity.

     While NBH continues to its foreign currency swaps to provide euro liquidity at the end of quarters, it said it would gradually phase out the swap facility used to provide forint liquidity.

      Hungary's economy continued its recovery in the third quarter of this year - after reaching pre-pandemic levels of output in the second quarter, but the central bank said a new wave of the pandemic had boosted the risks to the economy while the peak of inflation was in sight.

     "These warrant a continuation of the monthly interest rate tightening cycle with lower pace," NBH said, raising its forecast for economic growth this year to 6.5 to 7.0 percent from June's forecast of 6.2 percent.

     In the second quarter of this year Hungary's gross domestic product grew 17.9 percent from the same quarter last year after shrinking 2.1 percent in the first quarter.

     Next year NBH forecast growth of 5 to 6 percent in 2022, unchanged from its previous forecast.

     After rising sharply in April, inflation in Hungary eased from a high of 5.3 percent in June to 4.6 percent in July and 4.9 percent in August.

    "Some the inflation risks, indicated in June, materialized in the summer months; however, risks to the outlook remain on the upside," NBH said, warranting continued monetary tightening.

     The central bank said it expects inflation to rise further in the autumn and remain above 5 percent during the rest of the year but then begin to decline from the start of next year and return to the tolerance band of 2.0 to 4.0 percent in the second quarter.

     In the second half of next year, inflation is seen stabilizing around the central bank's midpoint target of 3.0 percent.

Hungary raises rate 2nd time in rate hike cycle

     Hungary's central bank lived up to expectations and raised its interest rates for the second month, reiterating its message that it "will continue the cycle of interest rate hikes until the outlook for inflation stabilizes around the central bank target and inflation risks become evenly balanced on the horizon of monetary policy."
     The National Bank of Hungary (NBH) raised all its key interest rates by another 30 basis points, including the base rate that was raised to 1.20 percent.

     The base rate is now twice its level between July last year and June this year when the central bank turned hawkish to prevent rising inflation from having longer-lasting effects on the economy and prevent inflation expectations detaching from its target.

    NBH also shifted its entire interest rate corridor upwards by 30 basis points, raising the overnight deposit rate to 0.25 percent from a negative 0.95 percent, the overnight collateralized lending rate to 2.15 percent and the one-week lending rate to 2.15 percent.

     Hungary becomes the eight central bank to raise its rate this month - and the third this week alone - in response to growing inflationary pressures. This has pushed the total number of rate hikes this year to 35, with 13 of those by banks in emerging markets. 

     "The Council (monetary council) considers it justified to continue the cycle of interest rate hikes by taking firm steps on a monthly basis to ensure price stability, avoid second-round inflationary effects and to anchor inflation expectations," the central bank said.

     As in June, when it raised the rate for the first time in a decade, NBH said it would continue raising the rates until inflation stabilizes around its target of 3.0 percent, plus/minus 1 percentage point, and inflation risks become evenly balanced.

     Inflation in Hungary rose to higher-than-expected 5.3 percent in June from 2.7 percent in January, with NBH saying the pace of price rises in services and industrial goods has accelerated further.

     An imbalance between rising demand and supply that was cut during the COVID-19 pandemic, and renewed tightening of the labour market in certain sectors combined with dynamic wage growth have increased the risk of inflation.

     "Upside risks to the outlook for inflation have generally increased," the central bank said, adding it expects inflation to decline gradually in coming months but still exceed its target range this year.

     Inflation is projected to fall back to the tolerance band at the start of 2022 and stabilize around the target from mid-2022 due to the bank's monetary tightening cycle.

     In addition to the rate hike last month, NBH also began phasing out some of the tools employed last year during the pandemic and said today it would continue this process and discontinue the use of its long-term collateralized lending facility from today.

     But as in June, the central bank said it still considers the purchase of government bonds - known as quantitative easing - to be a crucial part of its policy instruments and said it would "maintain a lasting presence in the market," taking a flexible approach to changing the quantity and structure of its weekly purchases "to the extent and for the time necessary."

     Through its presence, the central bank said it had cushioned any spillover of tensions from the international to the domestic swap market and this had helped ensure that short-term rates in every sub-market is consistent with that considered optimal by the bank's council.

Hungary kicks off rate hike cycle to curb inflation

     Hungary's central bank raised its main interest rate for the first time in a decade, living up to its guidance from last month, and said it would "continue the cycle of interest rate hikes until the outlook for inflation stabilizes around the central bank target and inflation risks become evenly balanced."

     The National Bank of Hungary (NBH) raised its base rate by 30 basis points to 0.90 percent, the first change in its policy interest rate since July 2020 when the rate was cut for the second consecutive month as it loosened monetary conditions to support the economy during the COVID-19 pandemic.

     The central bank's other main interest rates, such as the overnight deposit rate and the lending rate were left unchanged at minus 0.05 percent and 1.85 percent, respectively. But NBH said an increase in the one-week deposit rate, which is set at weekly tenders, to the base rate's 0.90 percent was warranted.

    "The (monetary) council has launched a cycle of interest rate hikes to ensure price stability, to prevent inflation risks from having long-lasting effects and to anchor inflation expectations," NBH said, adding the exact need for further tightening would be assessed each month.

     In parallel with an increase in interest rates, the central bank is also phasing out some of the monetary tools used during the COVID crises and closing its Funding for Growth Go! scheme. The program was launched in April last year to support financing for small and medium-sized businesses and helped more than 38,000 firms.

      For the time being, NBH will continue its purchases of government securities, saying it considers this be a crucial part of its monetary policy instruments that has been successful in maintaining liquidity in the bond markets and helped improve the effectiveness of policy transmission. 

     It will be flexible in changing the quantity of its weekly bond purchases but added it will continue to use the program "by maintaining a lasting presence in the market."

     Similar to last week's announcement by the Bank of Japan, Hungary's central bank said it would be introducing instruments to support environmental sustainability, with details to follow later.

     Today's rate cut reverses a decade-long monetary easing cycle in Hungary and the central bank is also the 15th central bank to raise rates this year, following in the footsteps of such nations as Russia, Brazil, Turkey, Ukraine, and Iceland that are responding to rising inflationary pressures.

     The last time NBH raised its rate was in December 2011 when the rate was raised to 7.0 percent.

     Six months later, in August 2012, NBH embarked on a four-year easing cycle that ended in May 2016 after the rate had been cut by a total of 6.10 percentage points to 0.90 percent.
      Between May 2016 and June 2020, NBH kept the rate steady, but with economic activity grinding to a halt during the pandemic, NBH's first move was to ensure liquidity in the country's financial markets and then it began purchasing government securities in May 2020.
     The following month, in June, the base rate was then cut 15 basis points and in July a second cut of 15 points followed.

      Apart from a hike to the one-week deposit rate in September last year to prevent a rise in inflationary risks, Hungary's central bank has been focused on ensuring a economic recovery from the pandemic and taking a wait-and-see approach to the bounce back in inflation in recent months.

     But with a successful roll-out of vaccines and a lifting of COVID-restrictions, economic activity in Hungary has bounced back and last month the central bank changed tack, saying it was now ready to tighten monetary conditions to ensure price stability and curb inflationary risks.

     Hungary's inflation rate jumped to 5.1 percent in April from a low of 2.7 percent in January and remained at 5.1 percent in May, the highest since November 2012, and well above the bank's target of 3.0 percent, plus/minus 1 percentage point.

    "Upside risks to the outlook for inflation have generally increased, " the bank said, adding commodity prices have been rising along with freight costs and the rapid recovery in demand will give producers an opportunity to pass on higher costs to consumer prices.

     The central bank expects economic output to recover to pre-COVID levels in the third quarter of this year and while the recovery of industry will be followed by retail, a recovery of the services sector will take longer.

    But the high rate of investment is expected to continue and exports to improve "markedly" this year as external markets recover while household demand picks up.

     The central bank raised its forecast for economic growth this year to 6.2 percent, up from the March forecast of 4-6 percent, and forecast growth of 5.5 percent next year and 3.5 percent in 2023.

     "Global relation and persistent rises in commodity prices as well as potential second-round effects arising during the restart of the economy pose the greatest risks to the outlook for inflation," NBH said.

     The central bank raised its forecast for inflation to average 4.1 percent this year, up from its March forecast of a 3.8-3.9 percent range. After spiking in the second quarter, inflation is expected to ease to around 4 percent during the summer months and then rise again at the end of the year.

     In early 2022 inflation is then expected to decline into the bank's tolerance range and then stabilize around the target from mid-2022.

     Hungary's forint, which was hit by the U.S. dollar's rise after the subtle, but substantial, change in the outlook for the Fed's policy last week, rose immediately.

     The forint jumped 1.2 percent to 352.0 against the euro and is now up 3.6 percent this year. Against the U.S. dollar, the forint jumped 1.4 percent to be up 0.3 percent this year.

Hungary holds rate but ready to hike to curb inflation

      Hungary's central bank left its key rate steady for the 10th time but left little doubt it is preparing to raise rates in response to rising inflation, saying it is "ready to tighten monetary conditions in a proactive manner to the extent necessary in order to ensure price stability and to mitigate inflation risks."
     The National Bank of Hungary (NBH) left its base rate at 0.60 percent, unchanged since July when it was cut for the second time last year in response to a deterioration in the economy from the pandemic.

     Apart from a hike to its one-week deposit rate in September last year to prevent a rise in inflationary risks, the central bank has taken a wait-and-see approach to inflation, with the monetary council last month saying the risks of higher inflation were balanced by the threat to the economic recovery from a third wave of the COVID-19 pandemic.

      But with more than half its population already vaccinated at least once - only just trailing the U.S. - Hungary has loosened its restrictions and its economic engine is restarting.

      NBH said economic activity is expected to pick up speed this quarter and grow by double digits after growing only 1.9 percent in the first quarter from the previous quarter.

      In April inflation in Hungary then soared to 5.1 percent, the highest since November 2012, from 3.7 percent in March, triggering a sharp shift in the central bank's view.

      The central bank targets inflation of 3.0 percent, plus/minus 1 percentage point.

     "In the monetary council's assessment, risks to the outlook for inflation have recently continued to strengthen even further," the bank said, adding the projection in its June inflation report would be key in assessing its outlook, signaling a rate hike is likely at its next meeting on June 9.

      The council's change in tone was already signaled last week when the deputy governor, Barnabas Virag, said inflationary risks had clearly risen and the bank would respond in several steps, with the possibility of a hike in the base rate worth considering in June as it begins to phase out its crises tools, which included the purchase of corporate bonds.

     Virag's words immediately sent the Hungarian forint soaring, continuing its rise since record lows in April last year in the wake of the pandemic.

     Between March 5 and April 5 last year, the forint tumbled 13 percent against the U.S. dollar but since then it has rebounded. Beginning last month the forint's trend has been consistently upward and today the forint was trading at 284.4 to the dollar, up 4.2 percent this year.

      "The Hungarian economy exhibits the potential for a strong recovery," NBH said, saying the latest data show growth this year will reach close to 6 percent, up from its March projection of between 4 and 6 percent.

     Output is now expected to reach pre-pandemic levels no later than in the fourth quarter of this year.

     A rate hike in June would mark the first time since December 2011 NBH has raised rates.

      Last year's two rate cuts in June and July, which lowered the base rate by a total of 30 basis points, followed four years with a steady rate of 0.90 percent. 
     Prior to that period, NBH was engaged in an aggressive easing campaign, cutting its rate 32 times and by a total of 6.10 percentage points between August 2012 and May 2016.
    But the central bank has always emphasized its strict commitment to price stability and underscored this in September last year by raising its rate on one-week deposits by 15 basis points to prevent any rise in inflationary risks. NBH also used the one-week deposit rate in April that year when the forint plunged.

Hungary cuts rate 2nd time, more easing via loans, QE

     Hungary's central bank cut its policy rate for the second month in a row but signaled it is unlikely to cut rates further and any further stimulus will be provided through its other tools, such as low-cost funds to small and medium-sized companies and the purchase of corporate bonds.
     The National Bank of Hungary (NBH) cut its base rate by another 15 basis points to 0.60 percent and has now cut it by 30 points this year following a similar-sized cut in June.
     "In the Monetary Councils's assessment, the 0.60 percent base rate supports price stability, the preservation of financial stability and the recovery of economic growth in a sustainable manner, the central bank said, adding in a rapidly changing economic environment, "it is key to maintain short-term yields at a safe distance from a range close to zero."
     The cut was widely expected by analysts and reflects Deputy Governor Barnabas Virag's statement on June 26 the central bank may cut its base rate by another 15 points but that is as far as it will go as it wants to keep a "safe distance" from the zero percent area.
      NBH said today that in the "event of a persistent deterioration in the outlook for growth, it would deliver additional economic stimulus using its targeted instruments, i.e. the Funding for Growth Scheme Go! and the Bond Funding for Growth Scheme, providing the most direct support to investment."
      The central bank has expanded both of these stimulus instruments this year and it said the impact of its rate cut in June had mainly affected the shorter segment of the yield curve and it wanted to ensure that longer-term bond yields also declined.
     It would therefore reallocate some of its lending instruments "to improve monetary policy transmission" and purchase limited amounts of 15-year government securities to support an extension of the maturity structure of government debt.
     As in June, the central bank said Hungary's economic activity this year is likely to be more subdued than earlier expected while the outlook for inflation has shifted downwards.
     The effects of the Covid-19 pandemic are likely to be the strongest in the second quarter and a recovery of economic growth is expected from the third quarter, helped by an expansion in corporate lending, higher public investment and a moratorium on installment payments of loans.
     But the export-related industries are first expected to pick up towards the end of this year due to the slower recovery of the external environment.
     Hungary's gross domestic product shrunk 0.4 percent in the first quarter from the previous quarter and NBH confirmed its forecast for growth this year of 0.3 to 2.0 percent, down from 2019's 4.9 percent, and then 3.8 to 5.1 percent in 2021 and 3.5 to 3.7 percent in 2022.
     After rising at the start of the year, Hungary's inflation rate decelerated sharply but then rose to 2.9 percent in June from 2.2 percent in May
     The central bank also confirmed its forecast for inflation, excluding indirect tax effects, will fall below 3 percent and average 3.3 to 3.5 percent this year and 2.6 to 2.7 percent in 2021.

     The central bank's rate cut in June, which surprised financial markets, pushed down the exchange rate of Hungary's forint, which was bouncing back against the euro after being hit hard in March. 

     But this month the forint has gained further strength and rose further in the wake of the rate cut and European Union leaders agreement on a 750 billion euro recovery package, including 390 billion euros of grants to some of the EU's weakest economies.
     The forint was trading at 351.1 to the euro today, up some 4 percent from this years low of 366 in early April but still 5.7 percent below its level at the beginning of this year.

UPDATED-Hungary cuts base rate first time in 4 years

     (Following item has been updated with details from the press release)
     Hungary's central bank cut its benchmark interest rate for the first time in four years, describing the move as a "fine-tuning" to help counter the decline in inflation and support economic growth, which is now looking more subdued than earlier expected.
     The National Bank of Hungary (NBH) cut its central bank base rate by 15 basis points to 0.75 percent as of June 24, the central bank said, surprising analysts who had expected the rate to be kept steady.
     The last time the central bank cut its base rate was in May 2016 when it was also cut by 15 basis points.
      "Based on incoming data, Hungarian economic performance in 2020 is likely to be more subdued than earlier expected, while the outlook for inflation has shifted downwards," NBH said.
      NBH left its other main rates unchanged, including the overnight deposit rate at minus 0.05 percent, and the overnight and one-week collateralised loan rates at 1.85 percent, respectively.
     Today's rate cut comes after NBH in early April modified its operational framework to provide liquidity to submarkets in a targeted manner and made its interest rate corridor symmetrical.
     Interest rates would be allowed to deviate upward and downward within this corridor and the overnight and one-week collateralized lending rates were raised by 95 basis points.
    The overnight collateralized loan rates would be set 110 basis above the base rate while the overnight deposit rate would be 80 points below the base rate.
     "In the Council's view, the current set of instruments provides appropriate room for maneuver to respond to emerging challenges in a targeted and flexible manner," the central bank said today.
     The impact of the Covid-19 pandemic on Hungary's economy is likely to be the strongest in the second quarter of this year but recovery is expected from the third quarter, with a pick-up in public investment and an expansion in corporate lending required for a V-shape recovery in the second half of the year, NBH said.
     In line with the expected slower global recovery, output from the country's export-oriented sectors may pick up towards the end of this year but overall Hungary's gross domestic product may show a "restrained pace" this year, the central bank added.
     Growth this year is forecast to slow to between 0.3 and 2.0 percent, down from 2019's 4.9 percent and the March forecast of 2.0 to 3.0 percent.
      In the first quarter of this year GDP contracted 0.4 percent from the previous quarter for annual growth of 2.2 percent, down from 4.5 percent in the fourth quarter of 2019.
     Next year Hungary's economy is seen bouncing back to expand 3.8 to 5.1 percent and then by 3.5 to 3.7 percent in 2022.
      As in other countries, the impact of the pandemic has slowed Hungary's inflation rate and the central bank expects volatility to persist before inflation slowly stabilizes around its 3.0 percent target though more muted domestic demand is likely to restrain underlying inflation.
     Hungary's consumer price inflation rate fell to 2.2 percent in May from 2.4 percent in April and NBH forecast inflation this year of 3.2 to 3.3 percent, down from 3.4 percent in 2019. In 2021 inflation is seen at 3.2 to 3.3 percent and then 3.0 percent in 2022.
     The exchange rate of the forint, which has been weakening against the euro since March 2019, fell further in response to the rate cut. The forint fell 0.8 percent to 349.9 per euro to be down 5.4 percent since the start of this year.

Hungary maintains rates, but begins buying bonds

     Hungary's central left its base rate steady but modified its operational framework and began buying bonds and re-started a loan program "to provide liquidity to the major sub-markets and to influence monetary conditions in a targeted manner" to help mitigate the effects of the coronavirus on the economy.
     The National Bank of Hungary (NBH) maintained its base rate at 0.90 percent, unchanged since May 2016, and the overnight deposit rate at minus 0.05 percent.
     However, NBH widened the interest rate corridor by making it symmetrical and raised the overnight and one-week collateralized lending rates by 95 basis points to 1.85 percent.
     The one-week deposit rate remains at the level of the base rate at 0.90 percent but will from now on it will let it deviate from the base rate within the rate corridor, setting the rate weekly.
    "By changing its policy instruments, the MNB has increased its room for monetary policy maneuver, so as to be able to address money market challenges in a flexible and timely manner," the central bank said, or Magyar Nemzeti Bank in Hungarian language.
     The central bank's measures form part of the government's overall package of measures worth some $30 billion, or 20 percent of Hungary's gross domestic product, including a moratorium on all repayments on corporate and household loans this year.
     As a growing number of other central banks, NBH also launched a program to purchase government securities in the secondary market to restore liquidity, and then relaunched its mortgage bond purchase program to "improve the long-term supply of funding to the banking sector."
    Details of the size of the bond purchases will be released later, it added.
    Reflecting this injection of liquidity, the central bank said it would no longer set a target for banking sector liquidity be be crowded out from interest-bearing instruments from the second quarter.
    To help small and medium-sized businesses, NBH will re-launch its Funding for Growth Scheme
(FGS), which was first used in 2013, adding 1 trillion forints so a total of 1.5 trillion will be available.
    Under FSG the central bank provides refinancing loans to credit institutions at zero percent interest rate while businesses will pay a maximum 2.5 percent interest, with a maximum maturity of the loans of 20 years.
     "After the last crises, the FGS has played a crucial role in avoiding a credit crunch and turning around the declining trend in lending to SMEs since 2013," NBH said.
     The central bank's corporate bond purchase program, known as the Bond Funding for Growth Scheme (BGS) will remain at 450 billion forint, with half of this used so another 200 billion is still available for NBH to purchase bonds by non-financial corporations based in Hungary.
    Although the current amount available under BGS is sufficient, the central bank said it may increase liquidity in the corporate bond market further by modifying some of the conditions.

Hungary keeps rates, affirms accommodative stance

     Hungary's central bank left its key interest rates unchanged and affirmed its guidance that its monetary policy stance will continue to be accommodative as "persistently buoyant domestic demand is boosting, and weakening external activity is restraining the pace of price increase."
     In March the National Bank of Hungary (NBH) tightened its policy stance for the first time since May 2016 when it raised the overnight deposit rate by 10 basis points to minus 0.05 percent as it kicked off its long-awaited phase of policy normalization due to meeting its inflation target.
    The benchmark base rate, however, was left unchanged at 0.90 percent in March as the central bank remains "very very cautious" - to quote Deputy Govenor Marton Nagy - and will only take further tightening steps as needed.
     The bank's monetary council said today it was applying a cautious approach in its policy decisions and would rely on projections for the economy and inflation.
     After a steady stream of cuts to its benchmark rate from August 2012 to June 2016 - the rate was cut by a total of 610 basis points - the NBH was still confronted with low inflation and responded with a series of unconventional measures, similar to the policy of major central banks.
     In the case of Hungary, the NBH launched low-cost lending programs, lowered its overnight lending rate and the required reserve requirement, and also decided to limit the use of its 3-month deposit facility, which had become its main monetary instrument from 2015 to end-2018, to encourage banks to buy government debt and offer cheaper loans.
     Faced with a tightening of monetary conditions in September 2017, the NBH lowered its overnight deposit rate by 10 basis points to minus 0.15 percent to ensure it would meet its inflation target of 3.0 percent,  plus/minus 1 percentage point.
    In response to improving growth in Europe and easy monetary policy, Hungary's inflation rate finally started accelerating in early 2018 and by September last year the central bank began preparing financial markets for "the gradual and cautious normalization of monetary policy," a move it then began to execute on March 26 this year.
     NBH's increase of the deposit rate, which represents the bottom of its interest rate corridor that is used to reduce the volatility of overnight rates, in March was the first time it was raised since September 2017.
     After this increase, the width of the bank's asymmetric interest rate corridor is 95 basis points, with the interest paid on overnight, collateralized loans equal to the base rate.
     But NBH is only tightening its policy gradually, aware that tightening against a backdrop of easing by the European Central Bank (ECB) will push up the exchange rate of the forint and thus tighten monetary conditions and push down inflation again.
     The forint began rising against the euro at the beginning of July last year until late March this year and since then it has fall back to trade at 323.9 to the euro today,  down 0.7 percent this year.
     Today the central bank said it was launching a corporate bond purchase program (Bond Funding for Growth Scheme) worth 300 billion forint on July 1 as a complement to its Funding for Growth Scheme Fix that was launched at the start of this year.
     After a dip in December and January, Hungary's headline inflation rate rose to 3.7 percent in March from 3.1 percent in February, boosted by higher fuel prices.
     Core inflation rose to 3.8 percent in March from 3.5 percent in February, boosted by the hike in taxes on tobacco at the start of 2019.
     The central bank confirmed its outlook for inflation to fluctuate around its target in coming quarters, with core inflation excluding indirect taxes continuing to rise until the fall when it then starts  to decline.
     Hungary's economy strengthened steadily through 2018 on the back of corporate and household lending and although gross domestic product is expected to slow this year from last year's 4.9 percent pace, the NBH still expects growth to remain strong.

This week in monetary policy: Hungary, Zambia, South Africa, Nigeria and Paraguay

    This week - November 18 through November 24 - central banks from 5 countries or jurisdictions are scheduled to decide on monetary policy: Hungary, Zambia, South Africa, Nigeria and Paraguay.
    On Nov. 17 the Central Bank or Nigeria rescheduled the Nov. 19 and Nov. 20 meetings of its monetary policy committee to Nov. 21 and Nov. 22 as Tuesday Nov. 20 was declared a public holiday by the government.

    On Nov. 6 Albania's central bank postponed until further notice the Nov. 7 meeting of its supervisory council scheduled to discuss the quarterly monetary policy report as the terms of six of nine members had expired.
    According to the supervisory council's published schedule, the council is scheduled to meet on Nov. 21 to approve the Bank of Albania's budget. It is not clear whether this meeting will take place.
    On Nov. 8 the National Bank of Angola postponed the meeting of its monetary policy committee originally scheduled for Nov. 23 until Nov. 30.

    Following table includes the name of the country, the date of the next policy decision, the current policy rate, the result of the last policy decision, the change in the policy rate year to date, the rate one year ago, and the country’s MSCI classification.

    The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.

WEEK 47
NOV 18 - NOV 24, 2018:
COUNTRY	DATE	RATE	LATEST	YTD	1 YR AGO
HUNGARY	20-Nov	0.90%	0	0	0.90%
ZAMBIA	21-Nov	9.75%	0	-50	10.25%
SOUTH AFRICA	22-Nov	6.50%	0	-25	6.75%
NIGERIA	22-Nov	14.00%	0	0	14.00%
PARAGUAY	22-Nov	5.25%	0	0	5.25%

    www.CentralBankNews.info

This week in monetary policy: Kazakhstan, Hungary, South Korea and Chile

    This week - October 14 through October 20 - central banks from 4 countries or jurisdictions are scheduled to decide on monetary policy: Kazakhstan, Hungary, South Korea and Chile.

    Following table includes the name of the country, the date of the next policy decision, the current policy rate, the result of the last policy decision, the change in the policy rate year to date, the rate one year ago, and the country’s MSCI classification.

    The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.

WEEK 42
OCT 14 - OCT 20, 2018:
COUNTRY	DATE	RATE	LATEST	YTD	1 YR AGO
KAZAKHSTAN	15-Oct	9.00%	0	-125	10.25%
HUNGARY	16-Oct	0.90%	0	0	0.90%
SOUTH KOREA	18-Oct	1.50%	0	0	1.25%
CHILE	18-Oct	2.50%	0	0	2.50%

    www.CentralBankNews.info

Hungary maintains rate and commitment to easy policy

      Hungary's central bank left its key interest rates steady, as expected, and confirmed that it still considers a steady base rate and loose monetary conditions to be necessary to reach its inflation target in a sustainable manner from mid-2019 as the temporary rise in inflation from higher oil prices fades.
     The National Bank OF Hungary (NBH), which has kept its base rate at 0.90 percent since May 2016, also reiterated that the "current volatile international environment continues to suggest a more cautious approach," a reference to a renewed bout of uncertainty in markets from events in Turkey, global trade policy, oil prices and tighter monetary policy in advanced economies.
      Hungary's inflation rate has been accelerating since March and rose to 3.4 percent in July for the highest rate since August 2016, reflecting higher oil prices.
      The rise in inflation to above the central bank's 3.0 percent target, but still within its plus/minus 1 percentage point tolerance range, was expected by NBH, which in June forecast that inflation would remain above 3 percent in coming months.
      But with inflation expectations still low, the central bank doesn't expect higher oil prices to generate second-round effects so inflation should ease and settle around the target from the middle of next year.
      With inflation rising and forecast to remain close to the central bank's target, economists are starting to look ahead to a withdrawal of monetary stimulus.
      While the NBH has kept its key policy rate steady for more than 2 years, last year it lowered its overnight deposit rate and launched a series of unconventional measures to keep long term rates low.
      This includes limits on the stock of deposits that banks can hold at the central bank to ensure they lend out funds along with interest rate swaps and purchases of mortgage notes.
      "All in all, this calls for some removal of the monetary accommodation, starting with unconventional measures," the International Monetary Fund (IMF) said earlier this month, welcoming the central bank's recent emphasis on its commitment to its inflation target.
       The central bank current has a target of crowding out at least 400-600 billion forints for the third quarter of this year along with a 75-billion upper limit on banks' 3-month deposits.
      In September the central bank's council will consider how much liquidity should be crowded out.
      Hungary's economy continued to grow strongly in the second quarter of this year and NBH said recent data showed that "robust economic growth is likely to continue," with lending to households and businesses continuing to expand in June and labour demand still strong.
      Hungary's Gross Domestic Product grew by an annual 4.6 percent in the second quarter of this year, up from 4.4 percent in the previous two quarters, and higher than expected.
      The central bank expects growth this year of 4.4 percent this year, up from 2017's 4.0 percent, but the pace of growth is then expected to ease gradually from 2019.
      The forint hit a record low against the euro of almost 330 in early July but then rebounded the rest of the month. In the second week of August the forint then weakened again but has remained above the record low set in early July.
     Today the forint was trading at 323.7 to the euro, down 3.7 percent this year.

This week in monetary policy: Mauritius, Hungary, Zambia, Botswana and Paraguay

     This week - August 19 through August 25 - central banks from 5 countries or jurisdictions are scheduled to decide on monetary policy: Mauritius, Hungary, Zambia, Botswana and Paraguay.

    Following table includes the name of the country, the date of the next policy decision, the current policy rate, the result of the last policy decision, the change in the policy rate year to date, the rate one year ago, and the country’s MSCI classification.

    The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.

WEEK 34
AUG 19- AUG 25, 2018:
COUNTRY	DATE	RATE	LATEST	YTD	1 YR AGO
MAURITIUS	20-Aug	3.50%	0	0	4.00%
HUNGARY	21-Aug	9.00%	0	-50	10.00%
ZAMBIA	22-Aug	9.75%	0	-50	11.00%
BOTSWANA	23-Aug	5.00%	0	0	5.50%
PARAGUAY	23-Aug	5.25%	0	0	5.25%

    www.CentralBankNews.info

Hungary maintains rates and loose policy guidance

      Hungary's central bank left its key interest rates unchanged, as universally expected, and confirmed its guidance from recent months that "maintaining the base rate and the loose monetary conditions at both the short and long ends for an extended period is necessary to achieve the inflation target in a sustainable manner."

      The National Bank of Hungary (NBH) has maintained its base rate at 0.90 percent since May 2016 and last month the deputy governor, Martin Nagy, told a local newspaper the base rate would remain steady until the end of 2020 to ensure loose monetary conditions.

      Echoing its previous statement from February, the NBH also said it expects to reach its inflation target in a sustainable manner by mid-2019 and economic output, which is now close to its potential level, will continue to pick up further this year before slowing down gradually from 2019.

       In February Hungary's inflation rate was steady at 2.1 percent from January and is expected to remain in the lower half of the central bank's tolerance range of 3.0 percent, plus/minus 1 percentage point, in coming months.

       But the central bank's measures of underlying inflation remain below core inflation, which was 2.4 percent in February, and the NBH still doesn't see any upward pressure on inflation from wages.

       While the NBH has kept its key policy rate steady for almost 2 years, it lowered the overnight deposit rate by 10 basis points to minus 0.15 percent in September 2017 to counter downside risks to inflation and began employing a range of unconventional instruments to keep long-term interest rates low. 

       Most recently the central bank in January launched interest rate swaps and a program of mortgage note purchases on top of earlier limits on the stock of deposits that banks can hold at the NBH in order to ensure they lend out funds.

      In June the bank's council will decide on the amount of liquidity that it wants to crowd out after setting the maximum stock of interest rate swaps in the first half of this year at 600 billion forints. 

      In the first quarter of this year the average amount of liquidity crowded out exceeded the 400-600 billion  forint target set in December.

      "The council's aim is that the loose monetary conditions have their effect not only at the short but also the longer end of the yield curve," the central bank said, adding it also takes into account the relative position of domestic long-term yields to international yields.

       In recent months the short end of the yield curve has shifted upwards in parallel with international yields but over a longer horizon spreads relative to the euro area decreased significantly.

       Domestic demand in Hungary is continuing to strengthen and the central bank expects growth this year in excess of 4 percent after the economy grew 4.4 percent in 2017.

Hungary holds rate, launches 2 tools to hold down yields

       Hungary's central bank left its key interest rates unchanged but went against the general trend in European monetary policy by launching two new unconventional instruments aimed at ensuring "the persistence of loose monetary conditions over a prolonged period."
       The National Bank of Hungary (NBH), which has maintained its base rate at 0.90 percent since May 2016, will introduce "unconditional interest rate swap (IRS) facilities" with 5 and 10-year maturities from January 2018, with a first quarter allocation of 300 billion forints, along with a program to purchase mortgage bonds with maturities of 3 years of more.
      "Both programs will also contribute to an increase in the share of loans with long periods of interest rate fixation," the central bank said, adding it will decide on operational details next month.
      The NBH was expected to launch new policy instruments today after its monetary council last month decided it was necessary to loosen monetary conditions further and push down long-term yields via unconventional instruments after the September inflation report concluded that downside risks to inflation had risen.
       After the central bank once again pushed back the target for meeting its inflation objective, the NBH in September also cut its overnight deposit rate by 10 basis points to minus 0.15 percent and lowered the upper limit on the stock of 3-month central bank deposits to 75 billion forint from the end of 2017 from 300 billion at the end of of the third quarter of 2017.
       The NBH expects to reach its inflation target of 3.0 percent, plus/minus 1 percentage point,  by mid-2019 instead of early 2019 and confirmed this forecast today.
      Hungary's headline inflation rate eased to 2.2 percent in October from 2.5 percent in September and the central bank expects inflation to average 2.4 percent this year, up from 0.4 percent in 2016, as inflation declines to the bottom of its tolerance band by the end of this year.
       Core inflation is expected to decline in the second half of next year as the temporary effects from changes in tobacco and dairy products fade. Moderate imported inflation, low inflation expectations and planned cuts in Value-Added-Tax next year will also slow any rise in domestic prices,.
       In September the central bank also cut its 2018 inflation forecast to 2.5 percent from 2.8 percent and the 2019 forecast to 2.9 percent from 3.0 percent.
       Hungary's economy expanded by 3.6 percent year-on-year in the third quarter of this year, up from 3.3 percent in the second quarter. The central bank confirmed its forecast for economic growth this year of 3.6 percent, adding growth will be between 3 and 4 percent in coming years.
       In September the central bank forecast growth of 3.7 percent in 2018 and 3.2 percent in 2019, up from 2.0 percent growth in 2016.
       Hungary's forint has been weakening in recent months after strengthening in the second quarter of this year. The forint was trading at 313.3 to the euro today, down 1.1 percent this year.

Hungary slashes overnight deposit rate, deposit limit

      Hungary's central bank left its base rate steady at 0.90 percent but lowered its overnight deposit rate and slashed the amount of funds banks can park at the central bank to counter tighter monetary conditions as it once again pushed back the date for meeting its inflation target.
      The National Bank of Hungary (NBH), which has kept its key rate on hold since May 2016, cut the overnight central bank deposit rate by 10 basis points to minus 0.15 percent and lowered the upper limit on the stock of 3-month central bank deposits to 75 billion forint from the end of 2017 from 300 billion at the end of of the third quarter of 2017.
       After cutting its base rate by a total of 610 basis points from August 2012 to the current level in May 2016, the NBH has been easing policy by other means, including cutting the overnight lending rate, the required reserve ratio and by limiting the use of its 3-month deposit facility since July 2016 to encourage banks to buy government debt and offer cheaper loans.
       The limit on the stock of 3-month deposits that banks can hold, which the central bank now considers an integral part of its policy instruments, is set each quarter.
      "In the council's assessment the limitation of the stock of three-month deposits has fulfilled its role and the HUF 75 billion year-end limit on the stock will not be reduced further," the NBH said.
       The central bank said the additional liquidity provided by its limit on deposits had helped push down the 3-month Budapest Interbank Offered Rate (BUBOR) to new historic lows while yields on 3- and 5-year government securities were also at historic lows.
       "The repeated delay in the date of meeting the inflation target also warrants monetary easing," the NBH said, adding it was also increasing the stock of swap instruments to provide a loosing of monetary conditions up to the longest possible section of the yield curve as soon as possible.
      In the future, the central bank said the importance of the stock and maturity structure of swap instruments in providing forint liquidity would increase.
      Hungary's economy is slowly picking up speed and while the central bank maintained its growth forecast in its September inflation report, it lowered the inflation forecast.
      Economic growth this year is forecast to rise to 3.6 percent, then 3.7 percent in 2018 and 3.2 percent in 2019, the same as forecast in June. This compares with growth of 2.0 percent in 2016.
      Hungary's economy grew by an annual 3.2 percent in the second quarter of this year, down from 4.2 percent in the first quarter.
       But the central bank's aim of raising inflation to its medium-term target of 3.0 percent was once again pushed back by six months to the middle of 2019 from early 2019. In the June inflation report, the central bank also pushed back the date for achieving its inflation target by half a year.
       While the NBH maintained its forecast for inflation to average 2.4 percent this year, up from 0.4 percent in 2016, it lowered the 2018 forecast to 2.5 percent from a previous forecast of 2.8 percent and the 2019 forecast to 2.9 percent from 3.0 percent.
       In August Hungary's inflation rate rose to 2.6 percent from 2.1 percent in July but the central bank expects inflation to decline by the end of this year to the bottom of its tolerance band of 1 percentage points above and below the 3.0 percent target.