Economy 19 October 2021, 3:50pm

Hungary cenbank to continue rate hikes also in 2022 - Deputy Governor

Portfolio

It will be a long road [but] we will stay on it as long as necessary. Monetary tightening will continue also in 2022, said one of the Deputy Governors of Hungary’s central bank (MNB). Barnabás Virág told Portfolio’s Budapest Economic Forum conference on Tuesday that upside risks to inflation have increased since the previous policy meeting in September, and CPI could rise more than previously expected mainly due to surging energy prices. The Monetary Council of the bank has raised interest rates by 15 basis points today, as expected, but the subsequent weakening of the forint suggests the market was not entirely satisfied with the pace.

We got used to it that everyone has an opinion on soccer, and slowly we can say the same about monetary policy too

, Barnabás Virág kicked off his presentation at Portfolio’s Budapest Economic Forum conference today, reacting to various speakers raising the issue of the central bank’s duties earlier in the day.

Sticking to sport analogies Virág stated that “we have the right tactics to win the series of matches against inflation.”

He thinks there are two kinds of central banks in the world. One talks about inflationary risks, the other actually does something against them. Those that had said earlier that inflation would be temporary, possibly have a different view by now. More and more people agree that the rise in consumer prices can jeopardise economic growth and recovery.

It is no longer a question whether inflation will be temporary or persistent, rather if it will be persistent or even more permanent

, he remarked.

Virág came to conference right from a Monetary Council policy meeting.

He underlined that inflation could be higher than projected in the September Report on Inflation due to surging energy prices, adding that

upside risks to inflation have increased over the past month.

The Deputy Governor thinks that the recovery of the Hungarian economy could be among the fastest in the European Union, and monetary policy clearly needs to focus on maintaining price stability.

We must not undertake more significant long-term risks for uncertain short-term gains

, he warned.

Virág also said the MNB is prepared to fight a long battle with three tools:

The base rate which has been raised by 120 basis points since June 2020. The rate hike cycle is to continue at a monthly rate until the outlook on inflation stabilises on the central bank’s target and risks become balanced. It will be a long road [but] we will stay on it as long as necessary.
The central bank continues to phase out its FX swap facility providing forint liquidity in a dynamic way. In addition, the bank will prepare further steps to preserve the stability of the swap market and the effectiveness of monetary policy transmission in the coming months.
The MNB’s weekly government security purchases will be maintained until December at the current target volume of HUF 40 billion per week.