Hungary central bank to review tightening pace in December - Virág
Portfolio: The National Bank of Hungary (MNB) has stuck to its tightening pace announced in September. What were the new developments the Monetary Council has taken into consideration now?
Barnabás Virág: We are in an extremely fast-changing macroeconomic environment. Firstly, the price of certain energy goods on the commodity market changed very rapidly recently, and monetary policy also needs to be adjusted to that. In September, we switched from a 30bp pace to 15 basis points [but] it’s a mistake to draw any conclusion from that.
We need to prepare for a long battle when it comes to the management of inflation. The energy price increase we have been witnessing since September results in a higher inflation path, while risks are even more heavily on the upside.
Is the 15bp pace set in stone or it could be faster?
I’d compare the current course to a marathon race where we need to take every section at the right speed so we can finish the race. In this section we proceed at a 15-basis-point pace. We shall make the next projection in December when we are going to evaluate comprehensively the entire macroeconomic spectrum and make a call on how to proceed.
The central bank has declared it for the first time that the rate hike cycle will continue in 2022. Has the interest rate course been pushed higher compared to September?
This means we wanted to provide a clear guidance. Predictability regarding our interest rate path is of utmost importance. At the same time, drastic changes in the cost environment naturally creates a new situation for every central bank [and] we have responded to that with the new messages.
When do you think the 3.0% inflation target can be attained?
We said back in September that the achievement of that target was delayed to the second half of 20222, and the cost shocks of the last few weeks fuelled this process even more. Currently we believe it [the 3.0% CPI target] could be reached sometime around the end of 2022, but for that we need to tighten monetary conditions continuously.
Even in your presentation you mentioned that cost shocks could hinder economic growth and recovery. Do you expect this to happen already in the short term?
I think we are at the start of this process. It is worth revisiting economic history books on the seventies, the example of which clearly attested that a lasting energy price increase has serious consequences on growth. These risks do exist currently around the world. The MNB unequivocally bets on the management of risks to inflation; we are clearly focusing on the management of said risks.
Cover photo: Pictorial Collective/Portfolio
