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Hungary. The central bank raises interest rates. why? What is the effect of inflation?

Hungary.  The central bank raises interest rates.  why?  What is the effect of inflation?

The Hungarian National Bank (MNB) raised the benchmark interest rate on three-month deposits from 0.60% to 0.90%. The Hungarian central bank said in a press release that it raised the interest rate “to ensure price stability and prevent any lasting effects of threats to inflation expectations.” In Hungary, prices rose in May with the fastest growth in the entire European Union, followed by Poland.

“In the opinion of the MNB, it is justified to initiate a cycle of interest rate increases in order to ensure price stability, prevent lasting effects of threats to inflation expectations and solidify inflation expectations,” the statement wrote after the Hungarian Central Bank. Bank meeting.

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Balance of risk factors

“The Board considers that the balance of risk factors for inflation growth expectations is pointing up. In the context of inflation expectations and the evolution of risk factors, the Board assesses in its monthly meetings the need for more – monetary tightening based on the data, and the Monetary Board will continue the cycle of increasing interest rates until such time as it is time to stabilize expectations Inflation around the central bank’s target and balancing the risk factors for inflation on the horizon of monetary policy “- he added.

Hungarian Central Bank Governor György Matulcci said on Monday that Hungary is threatened with speculative attacks without the bank taking any action. He added that the 2022 election budget may boost inflation along with negative real interest rates.

We talk about negative real interest rates when the nominal interest rate is less than inflation.

“This is the beginning of a new era”

On May 17, the Vice President of the Hungarian Central Bank, Barnabas Viraj, indicated that higher prices could be offset by monetary tightening. The bank should consider raising the benchmark rate in June as part of a data-driven tightening cycle. (…]The risk of inflation has clearly increased. Farage said the central bank wants to respond to persistent inflation risks at a reference rate.

– MNB promised and presented effective tightening, which is very important. It’s the start of a new era for Hungary’s monetary policy, said Marek Dremal, EMEA (for EMEA) strategist at Societe Generale SA.

During the meetings in July and June 2020, the MNB lowered the key rate by a total of 30 basis points in two steps of 15 basis points.

Inflation in Poland and Hungary

With Inflation data from Eurostat It shows that prices in May 2021 grew the fastest in Hungary – by 5.3 percent year on year. Poland ranked second in the ranking with an increase of 4.6 percent year on year.

Inflation in the European UnionDoor

During the press conference in June National Central Bank head Adam Glapiński . explainedThat inflation in Poland is still above the upper limit of the deviation from the target of the National Bank of Poland, but this is only due to negative supply shocks and completely external factors that exceed the influence of domestic monetary policy. The NBP inflation target is 2.5 percent – plus/minus 1 percentage point.

According to the governor of NBP, there is currently insufficient information and certain expectations regarding the scale and pace of the economic recovery. Therefore, no decision can be taken to raise interest rates. He stressed that “all expectations indicate that inflation will decrease next year.”

Glapiński also said that prices are rising around the world. – Despite the increase in inflation, none of the important central banks has tightened monetary policy – the head of the NBP noted.

According to the Central Bureau of Statistics The inflation rate in May was 4.7 percent.

PAP / Adam Zimenovic

Main image source: stock struggle

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