Hungary: The start of monetary policy normalization

3 min
Manfred Stamer
Manfred Stamer Senior Economist for Emerging Europe and the Middle East

This week the Monetary Council (MC) of Hungary kept its key policy interest rate (3-month deposit rate; +0.9% since May 2016) again unchanged, however, it raised the overnight deposit rate by 10bp to -0.05%. This may reflect rising inflationary expectations as consumer price inflation increased to 3.1% y/y in February (from 2.7% in January) while core inflation rose to 3.5% (from 3.2% in January) mainly owing to stronger price dynamics of processed food and market services. Both rates are still within the MC’s 3% ± 1pp inflation target range. However, the MC also revealed a new stimulus measure, the launch of a corporate bond purchasing program of HUF300bn (about EUR0.94bn) in July. This should be welcomed, in principle, as it intends to deepen the domestic NFC bond markets. Meanwhile, nominal wage growth (+10.4% y/y in Q4 2018) and nominal private sector credit growth (+10.7% y/y in January 2019) remain among the highest in Central Europe.