The Monetary Policy Council of the National Bank of Hungary (MNB) increased the interest rate by 100 basis points to 11.75%. According to the decision, the two sides of the interest rate corridor will be raised by the same amount. The central bank will raise interest rates on overnight deposits to 11.25% and on overnight loans to 14.25%. Only in the spring of 2004 was the key rate higher than it is now.
A further increase in inflation and persistent inflationary risks require a resolute continuation of the tightening cycle, according to the Monetary Council’s justification. The Monetary Council reiterated, in line with earlier justifications, that this is necessary from the point of view of achieving the central bank’s 3% inflation target. Inflation rate was already 13.7% in July. The MNB forecasts an August inflation rate of 15-16%. Further hikes in interest rates are to be expected in the coming months due to rising inflation. The Monetary Council will continue to raise the interest rate until the inflation outlook has stabilized and the risks are balanced.
The Ukraine war, a possible new Covid wave, high commodity prices and still faltering supply chains as well as the ongoing drought increase the risk of a recession in the global economy, which is underpinned by deteriorating confidence indicators. MNB expects inflation to rise further in the fall, in line with the global inflation environment. At the same time, increasing fears of a global recession and the resulting drop in commodity prices should ease external inflationary pressures from the end of the year.