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Hungary tightens monetary conditions further

Tuesday, November 30, 2021 13:01

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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.

The National Bank of Hungary issued the following statement:

“The Monetary Council reviewed recent economic and financial developments. In accordance with its meeting schedule, the Council did not discuss changing the base rate; however, at its current meeting a decision was taken to widen the interest rate corridor and make it asymmetrical. Based on its current decision, from 1 December, the Monetary Council increased the overnight deposit rate to 1.60 percent, while the overnight and the one-week collateralised lending rate were increased to 4.10 percent.

The primary objective of the Magyar Nemzeti Bank (MNB) is to achieve and maintain price stability. The Monetary Council indicated in the press release on its November decision that short-term risks in financial and commodity markets had increased recently, and the Bank intended to respond to these risks quickly and to the extent necessary. The interest rate on the one-week deposit has risen above the base rate in recent weeks. Widening and setting the interest rate corridor asymmetrical upwards is an integral part of the strategy of the new phase of monetary policy. In order to achieve and maintain price stability, it is highly important that the central bank has the appropriate monetary policy room for manoeuvre. This ensures the effective management of risks arising from the rapidly changing environment.”

www.CentralBankNews.info

Source: http://www.centralbanknews.info/2021/11/hungary-tightens-monetary-conditions.html

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