2023: National Bank Predicts Even Higher Inflation Rate

Average annual inflation is likely to be in the range of 15-19.5% next year, while economic growth could be in the range of 0.5-1.5%, according to Barnabás Virág, Deputy Governor of the National Bank of Hungary (MNB).

He explained the main forecasts of the Bank's latest Inflation Report at a press conference on the Monetary Council's interest rate decision. The central bank has significantly increased its inflation forecast, with the September report expecting inflation of only 11.5-14.0% in 2023.

In the light of the forecast, the government's expectations seem rather optimistic, analysts say. At the presentation of next year's public debt financing plan a few hours earlier, Finance Minister Mihály Varga said that the government expects inflation to reach 15% in 2023 (the bottom of the central bank's forecast range) and economic growth to reach 1.5% (the top of the central bank's forecast).

Inflation is sure to accelerate in December, with a peak expected early next year, and then a "protracted plateau" in the first half of the year. A meaningful slowdown in inflation is expected in the second half of the year, with the rate of increase likely to slow to single digits by the end of the year. Inflation could fall within the central bank's tolerance band (i.e. below 4%) in 2024.

The Monetary Council saw justification not only for maintaining the interest rate conditions (including the 13% base rate), but also for maintaining the measures introduced in October to halt the freefall in the forint exchange rate. So:

– The MNB will continue to directly provide the foreign exchange needed for energy imports.

– The overnight deposit facility at 18% remains.

The latter means that the benchmark rate is not the base rate of 13%, but 18%. According to Barnabas Virág, the key word in reducing the overnight deposit rate is ‘patience’. A gradual reduction of the benchmark rate can start once the country's risk perception improves in line with the trend.

Barnabás Virág also threw a new phrase into the public discourse: ‘profit-driven inflation’. The central bank's analysis shows that business profitability has increased since inflation started to accelerate. In several sectors of the economy, businesses have increased their prices more than their costs. The central bank therefore believes that measures to strengthen economic competition are needed.

Average annual inflation is likely to be in the range of 15-19.5% next year, while economic growth could be in the range of 0.5-1.5%, according to Barnabás Virág, Deputy Governor of the National Bank of hungary (MNB).

He explained the main forecasts of the Bank's latest Inflation Report at a press conference on the Monetary Council's interest rate decision. The central bank has significantly increased its inflation forecast, with the September report expecting inflation of only 11.5-14.0% in 2023.

In the light of the forecast, the government's expectations seem rather optimistic, analysts say. At the presentation of next year's public debt financing plan a few hours earlier, Finance Minister Mihály Varga said that the government expects inflation to reach 15% in 2023 (the bottom of the central bank's forecast range) and economic growth to reach 1.5% (the top of the central bank's forecast).

Inflation is sure to accelerate in December, with a peak expected early next year, and then a "protracted plateau" in the first half of the year. A meaningful slowdown in inflation is expected in the second half of the year, with the rate of increase likely to slow to single digits by the end of the year. Inflation could fall within the central bank's tolerance band (i.e. below 4%) in 2024.

The Monetary Council saw justification not only for maintaining the interest rate conditions (including the 13% base rate), but also for maintaining the measures introduced in October to halt the freefall in the forint exchange rate. So:

– The MNB will continue to directly provide the foreign exchange needed for energy imports.

– The overnight deposit facility at 18% remains.

The latter means that the benchmark rate is not the base rate of 13%, but 18%. According to Barnabas Virág, the key word in reducing the overnight deposit rate is ‘patience’. A gradual reduction of the benchmark rate can start once the country's risk perception improves in line with the trend.

Barnabás Virág also threw a new phrase into the public discourse: ‘profit-driven inflation’. The central bank's analysis shows that business profitability has increased since inflation started to accelerate. In several sectors of the economy, businesses have increased their prices more than their costs. The central bank therefore believes that measures to strengthen economic competition are needed.