16 November 2021

At its meeting on 16 November 2021, the Monetary Council reviewed the latest economic and financial developments and decided on the following structure of central bank interest rates with effect from 17 November 2021:

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 0.95 percentage points




O/N collateralised lending rate

Central bank base rate plus 0.95 percentage points




One-week collateralised lending rate

Central bank base rate plus 0.95 percentage points





The primary objective of the Magyar Nemzeti Bank (MNB) is to achieve and maintain price stability. Without prejudice to its primary objective, the Magyar Nemzeti Bank preserves financial stability and supports the Government’s economic policy, as well as its policy on environmental sustainability.

The global economic recovery has continued at a slowing pace in recent months, while the fourth wave of the coronavirus pandemic has led to a renewed increase in risks surrounding the recovery. Inflation rose to decade highs in several countries, which was further aggravated by disruptions in supply in a growing number of markets, in addition to persistent rises in commodity and energy prices.

Global investor sentiment has deteriorated since the Council’s previous policy decision and the probability of tensions in financial markets has increased. The spread of the Delta variant of coronavirus, difficulties becoming more common in supply and the persistent energy crisis also had an adverse effect on investor sentiment. In commodity markets, a significant wave of price increases has occurred. In the case of energy sources, the rise in prices was extraordinarily high; the prices of natural gas and electricity have multiplied since the beginning of the year. The world market price of crude oil remained above USD 80. Overall, the US dollar appreciated against the euro and most emerging market currencies.

The policy stances of the world’s leading central banks became tighter. At their November policy meeting, the decision-makers of the Federal Reserve decided to start phasing out the asset purchase programme. The European Central Bank slowed the pace of purchases under the Pandemic Emergency Programme (PEPP) in September, and based on the ECB’s communication, a decision will be taken in December on the further use of the asset purchase programme. In the CEE region, the Polish and Czech central banks sped up the pace of interest rate hikes, and the Romanian central bank continued to raise its policy rate at a constant rate in November.

Hungarian economic growth has continued, but its dynamics has slowed. According to the release of preliminary data, GDP grew by 6.1 percent in annual terms in the third quarter of 2021, leaving it 0.7 percent above its pre-crisis level. A wide range of sectors contributed to growth, but there were differences. In September industrial output declined and construction output increased. The volume of retail sales continued to rise in September, approaching pre-pandemic levels. The unemployment rate remained low in international comparison.

Looking ahead, based on high frequency data economic growth is expected to continue in the fourth quarter, but at a slower pace than before. Hungary’s GDP is expected to grow by between 6.5 and 7 percent in 2021 and by between 5 and 6 percent in 2022. Over the short term, the impact of declining industrial production due to weakening external demand and supply disruptions will be dampened by further increases in investment and consumption. Domestic demand has been supported by budgetary measures stimulating economic growth, favourable labour market conditions and higher wage growth resulting from the increase in the minimum wage from 2022. The investment rate is likely to rise further from its current high level. Hungarian export performance is expected to rise again as the fourth wave of the pandemic fades, which will be supported by new export capacities built in previous years.

In October 2021, annual inflation was 6.5 percent, and core inflation stood at 4.7 percent. Headline inflation rose by 1.0 percentage point and core inflation by 0.7 percentage points compared to the previous month. The rise in inflation was primarily driven by increases in fuel, industrial goods and food prices. The global pick-up in commodity prices is appearing in consumer prices of a growing range of products.

Inflation is expected to rise above 7 percent in November. Higher-than-expected and sustained increases in commodity prices are rapidly being incorporated into consumer prices in a buoyant domestic demand environment, leading to rising inflation in general. In addition to the lasting effects of supply, the pick-up in wage growth next year due to the increase in the minimum wage and strong economic growth, the consumer price index is expected to decline only slowly from the end of this year. As a result, inflation is expected to be substantially higher in 2022 as a whole than projected in the September Inflation Report. The extent of the shift in the inflation path will be quantified in the December Inflation Report projection.

In the Monetary Council’s assessment, inflation is clearly on an upward path along the risk scenarios compared to the September projection. Persistently high commodity and energy prices, rises in international freight costs and increasingly wider supply disruptions continue to point to a higher and more persistent external inflation environment. The tight labour market, coupled with strong wage growth and a higher inflation environment, may lead to increases in inflation expectations and to strengthen second-round inflation risks.

The government deficit is expected to fall from this year and the debt-to-GDP ratio to shift to a declining path even taking into account the September issuance of foreign currency denominated bonds. Over the short term, the current account balance is likely to worsen due to deteriorating terms of trade and more subdued export growth, but it is expected to improve again over the forecast horizon as a result of new export capacities and rising net exports. The economy’s net lending is likely to stabilise around 3 percent of the GDP, and therefore Hungary’s net external debt will continue to fall.

In response to the higher inflation path and the risk of increasing second-round effects, the Monetary Council decided to continue tightening monetary conditions at a faster pace. According to today’s decision, the central bank base rate rises by 30 basis points to 2.10 percent. The overnight deposit rate was increased to 1.15 percent, while the overnight and the one-week collateralised lending rates were increased to 3.05 percent. The base rate has risen by 150 basis points since the start of the rate tightening cycle in June.

The Monetary Council responds to longer-term internal fundamental changes in the outlook for domestic inflation by applying the interest rate tightening cycle. The Monetary Council considers it a key priority to anchor inflation expectations properly and thereby continuously to mitigate second-round inflation risks. In the persistently changed inflation environment, the Monetary Council intends to shape expectation appropriately by continuing the cycle of base rate hikes.

Nevertheless, short-term risks in financial and commodity markets have recently increased, and the Bank must respond to these significant changes quickly and flexibly. The corresponding instrument for this is the one-week central bank deposit. As long as financial and commodity market risks persist, the Bank must be ready to set the interest rate on one-week deposit above the base rate. The MNB will continue to set the one-week deposit rate at weekly tenders.

It remains a key priority for the MNB that short-term rates in every sub-market and at all times should develop consistently with the level of short-term rates deemed optimal by the Monetary Council. To this end, the MNB will actively use its swap facility providing foreign currency liquidity again at the end of the year, in addition to introducing several new measures.

To reduce liquidity in the banking system, the Bank will cease to use the FX swap facility providing forint liquidity. Furthermore, the Bank is also introducing a new, limited, occasional and short-term central bank discount bill that supports the effective sterilisation of liquidity in the financial system. The effectiveness of monetary policy transmission is also facilitated by the modification of the foreign exchange balance ratio (FXBR) regulations by the MNB’s Financial Stability Council, which provides more room for banks’ activity at the FX swap market. The technical details of the measures will be communicated in a separate press release.

In the Council’s assessment, a stable liquidity position in the government securities market remains crucial from the perspective of monetary policy transmission. At its September meeting, the Council set the target amount of the MNB’s weekly purchases at HUF 40 billion. The MNB continues to use the government securities purchase programme taking a flexible approach to changing the quantity and structure of weekly purchases, to the extent and for the time necessary. The Bank will not sell the stock of government securities on its balance sheet, purchased government securities will be held to maturity. The Monetary Council will set the next target amount of weekly purchases for the following quarter in December.

A persistent rise in external inflationary pressures and increasing second-round inflation risks have necessitated more extensive and longer lasting monetary policy tightening. The Council still considers it necessary to continue the interest rate tightening cycle on a monthly basis. The projection of the December Inflation Report will be decisive in determining the further extent of interest rate hikes. The Monetary Council will continue the cycle of interest rate hikes until the outlook for inflation stabilises around the central bank target in a sustainable manner and inflation risks become evenly balanced on the horizon of monetary policy.

The abridged minutes of today’s Council meeting will be published at 2 p.m. on 1 December 2021.



Monetary Council