The Monetary Council of the National Bank of Hungary (NBH) could consider raising the base rate at a policy meeting in June, deputy governor Barnabás Virág said on Monday, Reuters reported.
Virág said Hungary’s monetary policy would enter a new phase from June as the economy fully reopens, and the central bank would adjust short-term rates proactively to tackle rising inflation risks. He said rate rises could precede any decision about asset purchases, and the NBH’s next quarterly Inflation Report, which the Monetary Council will discuss at the June policy meeting, would be critical in assessing risks.
“This will be a data-driven process, in several steps…and the possibility of a hike in the base rate is worth assessing already in June,” Virág told journalists.
He said the economy will rebound dynamically from the pandemic-induced shock, with GDP growth seen now closer to 6% this year, due to a strong rise in demand. Virág said upside inflation risks have clearly risen since March, and the NBH would do everything to prevent second-round effects.
“We must not underestimate the risks of a sustained rise in inflation, and we will react to inflation risks pro-actively,” Reuters cited Virág as saying. “We will deploy a mixed strategy: we will shape short-term rates proactively…working on the phasing out of crisis management tools in parallel with that,” he said. He said the bank would react to sustained inflation risks by changing its key base rate, while the one-week deposit rate would be used to tackle short-term shocks in risk premia, Reuters reported. The NBH’s base rate has been unchanged at 0.60% since July 2020.
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