Hungary’s base interest rate rises again amid global economic upheaval

The Hungarian National Bank (Magyar Nemzeti Bank, MNB) has significantly tightened its currency liquidity, said Deputy Governor Barnabás Virág. He said the tightening will continue over the next few months as the inflation trajectory has yet to peak.

MNB still believes it is important to avoid the impact of the second round, which is why the base rate was increased to 11.75%. Viragazdasag, the Hungarian economy website. The bank’s deputy governor also said the war between Russia and Ukraine and the resulting price hikes in general have increased the risk of a recession in the global economy.

This could be particularly pronounced in Europe, where drought is exacerbating the situation, but the external inflation landscape could change after 2023.

The Hungarian economy showed strong growth in the second quarter, indicating a fairly strong economy.

However, economic activity has slowed since June and Barnabas Virág warns that inflation will continue to trend higher in the fall.

Barnabás Virág, Vice President of the Hungarian National Bank
Photo: MTI/Soós Lajos

Accelerating inflation is also a global phenomenon, with July inflation at 16% globally. Meanwhile, Hungary’s Q2 growth was her 6.5%, her fourth fastest in the EU. On inflation, the central bank governor has drawn attention to his 1970s lessons and said he should neither hesitate nor be alarmed in the face of the risk of persistent inflation.

Barnabas Virág said that monetary policy is not a snapshot-based decision and that the most important task is to avoid collateral effects. According to him,

A prerequisite for sustained economic growth is keeping inflation in check, which is the focus of current monetary policy.

The central bank governor also noted that it is too early to talk about whether we are facing a truly stagflationary environment as there are no signs of a severe recessionary shift at this point. “We don’t want it to be a war of numbers,” Barnabás Virág said, adding that the National Bank’s inflation report will reveal more details when he sees it in September.

Featured photo: Pixabay Hungary’s base interest rate rises again amid global economic upheaval

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