Key Interest Rate Up by 100 Basis Points in Hungary

At its meeting on Tuesday, the Monetary Council of the National Bank of Hungary (MNB) raised the central bank base rate by 100 basis points to 5.40%, and increased the two sides of the interest rate corridor by the same extent.

Previously, the board raised the key interest rate by 100 basis points to 4.40% at its March meeting. In February and January, the Monetary Council raised the central bank base rate by 50-50 basis points.

In the explanatory statement of the current decision, the Council stressed the primary objective of the National Bank of Hungary is to achieve and maintain price stability. Without prejudice to its primary objective, the National Bank of Hungary preserves financial stability and supports the Government’s economic policy, as well as its policy on environmental sustainability.

The Russia-Ukraine war that broke out at the end of February fundamentally changed the global economic outlook. Due to the geographical proximity and a larger share of trade with the two parties involved, the events are expected to have a greater effect on the European economy, especially in the Central and Eastern European region. Reaching decade highs, inflation continued to rise in a number of countries. The war has raised inflation through higher commodity and energy prices, which has been aggravated by ongoing supply disruptions, the statement says.

Global investor sentiment has been mixed since the Council’s previous interest rate decision. Risk appetite has been driven by news on the war and expectations for the Federal Reserve’s (Fed’s) rate hike, as well as developments related to the coronavirus pandemic. As a result of the war and the sanctions imposed on Russia, commodity prices initially soared amid high volatility which was followed by a correction in April: global oil prices fell to around USD 105. However, the price of natural gas remains at high levels, the Monetary Council points out.