23 June 2020

At its meeting on 23 June 2020, the Monetary Council reviewed the latest economic and financial developments and decided on the following structure of central bank interest rates with effect from 24 June 2020:

Central bank instrument

Interest rate

Previous interest rate (percent)

Change (basis points)

New interest rate (percent)

Central bank base rate





O/N deposit rate

Central bank base rate minus 0.80 percentage points


No change


O/N collateralised lending rate

Central bank base rate plus 1.10 percentage points


No change


One-week collateralised lending rate

Central bank base rate plus 1.10 percentage points


No change



In the current extraordinary economic environment, the Magyar Nemzeti Bank’s (MNB) mandate is still to achieve and maintain price stability, to preserve financial stability, as well as to support the Government’s economic policy. Based on incoming data, Hungarian economic performance in 2020 is likely to be more subdued than earlier expected, while the outlook for inflation has shifted downwards persistently. To maintain price stability and support the recovery of economic growth, fine-tuning of monetary conditions has become necessary.

The coronavirus pandemic hit the global economy in a weakened state. As a result of the measures taken to prevent the spread of the pandemic, in the second quarter real economic activity declined, while unemployment rates rose worldwide. From the beginning of May economic activity has restarted gradually as the restrictive measures were eased. There remains an exceptionally large degree of uncertainty in judging the time profile of the health emergency and the speed of the global economic recovery.

Due to the coronavirus pandemic, the outlook for growth in the global economy has deteriorated significantly. Disinflationary effects have strengthened generally. In parallel, the global leading central banks announced further easing measures. The Federal Reserve continued its liquidity-providing and asset purchase programmes. The European Central Bank raised the total amount of its asset purchase programme (PEPP), launched to counteract the effects of the pandemic, to EUR 1,350 billion and extended its horizon. In our region, the decision-makers at the Czech and the Polish central banks cut the policy rates to close to zero as well. In parallel with the restart of economic activity and the easing measures taken by the global leading central banks, financial market sentiment started to improve.

The coronavirus pandemic hit the Hungarian economy when its fundamentals were stable, and growth was strong. The economic policy pursued over the past decade has maintained the country’s macroeconomic balance and reduced its external and internal vulnerability. In the first quarter of 2020, Hungary’s economic growth slowed to 2.2 percent year on year. However, the Hungarian economy’s growth surplus compared to the euro area far exceeded the value of around 3 percentage points achieved in recent years. Hungary’s defence against the first wave of the coronavirus has been successful, which provides appropriate foundation for the economic recovery.

This year’s macroeconomic data are expected to show significant volatility and dichotomy. The effects of the pandemic are likely to be the strongest in the second quarter. Following a significant decline in GDP in the spring, a recovery of economic growth is expected from the third quarter. A pick-up in public investment and an expansion in corporate lending are required to a quick ‘V' shape economic recovery in the second half of the year. The moratorium on instalment payments of loans contributes HUF 2,000 billion to maintaining purchasing power and preserving jobs by the end of the year overall. In line with the expected slower recovery in the external environment, production in export-oriented industrial sectors may pick up towards the end of the year. Overall, Hungarian GDP may grow at a restrained pace in 2020. Economic growth is expected to be 0.3–2.0 percent in 2020, 3.8–5.1 percent in 2021 and 3.5–3.7 percent in 2022.

As a result of the cost of protective economic measures and the slower nominal GDP growth the budget deficit in 2020 is likely to rise compared to previous years but remain low in international comparison. The government debt ratio rises temporarily; however, with the quick recovery of the economy, it is expected to return to a downward path from 2021. The current account balance shows a moderate deficit this year as well, but net lending remains positive persistently. Hungary’s external debt-to-GDP ratios are expected to decline further.

Due to the coronavirus epidemic, strong disinflationary effects have appeared in the Hungarian economy as well. Following a temporary rise at the beginning of 2020, the consumer price index quickly returned into the central bank tolerance band, in line with expectations, before declining to its lower bound. Looking ahead, high volatility in inflation is expected to persist. Nevertheless, inflation is likely to stabilise again around the 3 percent central bank target as the effects of cost-sensitive items fade. Weakening economic activity caused by the coronavirus pandemic reduces core inflation excluding indirect tax effects through several channels. In addition to a weaker external inflation environment, more muted domestic demand compared to previous years is also increasingly restraining underlying inflation. Due to strong disinflationary effects, core inflation excluding indirect tax effects will fall below 3 percent: it is expected to stand at 3.3–3.5 percent in 2020 and at 2.6–2.7 percent in 2021.

Domestic financial market conditions have improved with the restart of the economy, meanwhile volatility in financial markets has declined further since the Council’s previous interest rate decision. For most of the period, the forint appreciated against the euro, in line with other currencies in the region. Liquidity conditions in the government securities market remains stable and auction demand has been strong.

The Magyar Nemzeti Bank has decided to implement a series of coordinated and targeted measures in recent months. The measures helped to stabilise domestic money market developments while liquidity with favourable conditions, available to all economic agents, supports the recovery of economic growth. The Bond Funding for Growth Scheme (BGS) and the Funding for Growth Scheme Go! (FGS Go!) ensure the domestic corporate sector to access sustainable, stable and long-term funding, and credit market and investment growth to pick up.

In the Monetary Council’s assessment, due to strong disinflationary effects the outlook for inflation has shifted downwards persistently, while Hungarian economic performance this year is likely to be more subdued than earlier expected. To maintain price stability and support the recovery of economic growth, the Monetary Council deemed general fine-tuning of interest rate conditions necessary. Accordingly, the Council reduced the central bank base rate by 15 basis points to 0.75 percent. The Monetary Council left the overnight deposit rate at -0.05 percent, and the overnight and the one-week collateralised lending rates at 1.85 percent unchanged.

In the Council’s view, the current set of instruments provides appropriate room for manoeuvre to respond to emerging challenges in a targeted and flexible manner. The Council continues to consider the government securities purchase programme as a safety net, which it intends to use in case of necessary and to the extent necessary. The MNB will still set the one-week deposit rate at the weekly tenders. In the Council’s assessment, in the current macroeconomic environment a similar shift in the one-week deposit rate as in the base rate is warranted.

This fine-tuning measure by the Monetary Council jointly supports the maintenance of price stability and the recovery of economic growth. The Council continuously assesses incoming data and changes in the outlook for inflation. In line with its statutory mandate, the Magyar Nemzeti Bank will use every instrument at its disposal to achieve price stability and to support the Hungarian economic and financial system.

The abridged minutes of today’s Council meeting will be published at 2 p.m. on 8 July 2020.


Monetary Council