23 March 2021

At its meeting on 23 March 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 24 March 2021:

Central bank instrument

Interest rate

Previous interest rate (percent)

Change (basis points)

New interest rate (percent)

Central bank base rate



No change


O/N deposit rate

Central bank base rate minus 0.65 percentage points


No change


O/N collateralised lending rate

Central bank base rate plus 1.25 percentage points


No change


One-week collateralised lending rate

Central bank base rate plus 1.25 percentage points


No change



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.

Global macroeconomic and financial market developments continue to be primarily driven by the events related to the coronavirus pandemic. In the fourth quarter of 2020, the performance of the global economy was more favourable than expected. However, the third wave of the coronavirus pandemic led to the maintenance of restrictions and the imposition of further restrictive measures. The timing of the reopening of economies largely depends on the population’s vaccination coverage rate; however, vaccination is progressing at a slower pace than expected in most countries around the world. There continues to be an exceptionally high degree of uncertainty surrounding the pace of global economic recovery.

In the past month, risk appetite has been driven by developments related to the coronavirus pandemic, news on the approval of the US budget stimulus package and global reflation concerns. In developed markets, there was a general increase in yields. Since the beginning of 2021, commodity prices increased significantly, and global oil prices continued to rise.

At its policy meeting in March, the Federal Reserve maintained loose monetary conditions. The European Central Bank also held its interest rate conditions unchanged and continued its asset purchase programmes. Decision-makers pointed out that more purchases may be made under the pandemic emergency purchase programme (PEPP) in the second quarter. In the CEE region, the central banks of Poland and Romania left policy rates unchanged in March. Due to the protracted economic recovery, the world’s leading central banks and those in the region are likely to maintain loose monetary conditions over a prolonged period.

The Hungarian economy proved to be crisis-resilient to the second wave of the pandemic. In the fourth quarter of 2020, gross domestic product rose by 1.4 percent from the third quarter but fell by 5.0 percent throughout the year. In 2020, Hungary’s economic performance fell to a lesser extent than the average of the European Union. As a result, economic convergence continued.

In terms of demand and supply, the Hungarian economy exhibits a potential for rapid recovery. Throughout 2020, the business investment rate stood at a high level, at 27.5 percent, while the unemployment rate remained low compared to international levels. Credit markets continued to expand strongly even in international comparison. In terms of demand, the recovery has been driven by an increase in household income, a pick-up in government and private investment and the accelerating withdrawal of EU funds. The vaccination process in Hungary is progressing more favourably compared to other European countries. The progress will be an important factor in determining the pace of economic recovery.

With the restrictive measures remaining in effect and the interruptions in production chains, the third wave of the coronavirus pandemic is expected to cause a decline in GDP in the first quarter of 2021. Domestic demand may pick up after progress has been made in vaccination. Continued growth in investment is key to economic recovery. The financing environment remains supportive, in which the Bank’s FGS Go! and the Bond Funding for Growth Schemes play a key role. In addition to the current, ongoing capacity improvements, growth in corporate investment is supported by new development projects, financed by foreign direct investments. Household investment, in turn, has been stimulated by the Government’s housing allowance programmes. GDP is expected to grow by between 4.0 and 6.0 percent in 2021, by between 5.0 and 6.0 percent in 2022 and by 3.5 percent in 2023.

In February 2021, annual inflation was 3.1 percent, core inflation was 4.1 percent and core inflation excluding indirect tax effects stood at 3.4 percent. Inflation rose by 0.4 percentage points and core inflation excluding indirect tax effects fell by 0.1 percentage point relative to the previous month. The rise in inflation reflected an increase in fuel prices.

Inflation is likely to be highly volatile in the coming months. In analysing longer-term trends, the MNB places great emphasis on the assessment of underlying indicators, especially on core inflation excluding indirect tax effects. In the coming months, spikes in inflation will occur due to base effects, rising fuel prices, further increase in excise duties and demand-supply frictions as the economy restarts. The consumer price index will approach 5 percent in the second quarter. Rising fuel prices and tax changes account for about half of this level. As temporary effects fade, inflation will return to the central bank tolerance band from the summer months. In 2021, annual average inflation is expected to be in the range of 3.8–3.9 percent and core inflation excluding indirect tax effects will be around the 3 percent level.

Spikes in inflation are mainly caused by supply-side and cost factors. With inflation expectations anchored, we do not expect second-round effects according to our baseline scenario. Fading temporary effects, unused capacity in the economy and the moderate external inflation environment are all expected to contribute to a decline in domestic prices from the first quarter of 2022. As a result, inflation is expected to stabilise around the central bank target again. The MNB lays special emphasis on developments in inflation expectations following the restart of the economy, and on the neutralization of potential second-round effects.

As it was confirmed by the latest credit ratings by S&P and Fitch, Hungary has a relatively strong economic performance and recovery potential, as well as a solid debt repayment ability. According to preliminary financial accounts data, the accrual-based government deficit may have been around 8.0 percent of GDP in 2020 due to the coronavirus pandemic, but it may decline again from this year. After falling steadily since 2011, gross government debt increased temporarily to over 80 percent of GDP in 2020; however, it is likely to shift to a downward path from this year as economic growth is restored and the deficit declines. Debt financing has been stable, strongly supported by domestic savings.

Outstripping expectations, the current account was in a surplus in 2020. In the coming years, the country’s current account balance is expected to improve further, driven by the recovery in external demand and the gradual increase in the output of new production capacities. With the capital account strongly in surplus, Hungary’s net lending is expected to improve significantly, while Hungary’s net external debt continues to fall further.

In response to the adverse economic effects arising from the coronavirus pandemic, the MNB expanded significantly the central bank balance sheet in 2020. The Monetary Council continues to be ready to manage risks arising from the coronavirus pandemic and to foster the quick and sustainable recovery of economic growth in a targeted way.

The government securities purchase programme has contributed successfully to maintaining a stable liquidity position in the government securities market and has improved the effectiveness of monetary policy transmission. Since the start of the programme, the stock of government securities in the Bank’s balance sheet has increased by over HUF 1,600 billion. The MNB will continue to use its government securities purchase programme by maintaining a lasting presence in the market, taking a flexible approach to changing the structure of weekly securities purchases, to the extent and for the time necessary.

The FGS Go! and the Bond Funding for Growth Scheme remains key in the process of economic recovery. The MNB will continue to sterilise the resulting surplus liquidity issued under the programmes in full, using the preferential deposit instrument.

At its meeting today, the Monetary Council left the base rate and the overnight deposit rate unchanged at 0.60 percent and -0.05 percent, respectively, and the overnight and the one-week collateralised lending rates at 1.85 percent. The MNB will continue to set the one-week deposit rate at weekly tenders, in response to the increase in risk aversion vis-a-vis emerging markets. The Bank will maintain the difference between the base rate and the one-week deposit rate as long as warranted by inflationary risks.

It is 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. Therefore, similarly to previous quarters, the MNB will hold foreign exchange swap tenders providing euro liquidity at the end of March, thereby contributing to maintaining the stability of monetary conditions.

In the Monetary Council’s assessment, the increase in risk aversion vis-a-vis emerging markets and potential second-round effects following the restart of the economy pose the greatest risk in terms of the outlook for inflation. By contrast, the protraction of the pandemic threatens a quick economic recovery and points to a lower inflation path than projected in the baseline scenario.

The MNB continues to be committed to maintaining price stability even during the third wave of the coronavirus pandemic. It is the MNB’s clear intention to prevent the current uncertain environment from causing a sustained rise in inflation. The Council closely monitors developments in investors’ risk appetite in emerging markets and potential second-round inflationary effects resulting from the restart of the economy. If warranted by an increase in upside risks to inflation, the MNB will be ready to use the appropriate instruments.

The abridged minutes of today’s Council meeting will be published at 2 p.m. on 7 April 2021.


Monetáris Tanács