25 May 2021

At its meeting on 25 May 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 26 May 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 driven primarily by the events related to the coronavirus pandemic; however, risks associated with global reflation have been increasing recently as well. A growing number of economies have been started to reopen. The pace of the reopening has been significantly influenced by developments in the pandemic and the population’s vaccination coverage.

World trade and global industrial production are already above the levels seen before the pandemic. In the first quarter of 2021, the US economy grew compared to the previous quarter, while the Chinese economy continued to expand. The euro area’s economic performance declined in the first quarter. Nevertheless, incoming data exceeded earlier expectations for several Member States.

In the past month, risk appetite was primarily driven by developments related to the coronavirus pandemic, price increases in commodity markets and global reflation concerns. After a significant increase at the beginning of the year, there was a slight reversal in developed market yields. However, a bigger-than-expected spike in US inflation in April led to a rise in global long-term yields again. Since the beginning of 2021, commodity prices have risen significantly, and global oil prices have remained above USD 65.

The Federal Reserve’s decision-makers left loose monetary conditions unchanged at their policy meeting in April and reiterated that the asset purchase programmes would be continued. The European Central Bank increased the amount of purchases made under the Pandemic Emergency Purchase Programme (PEPP) in the second quarter. In the CEE region, the Czech, Polish and Romanian central banks have also left policy rates unchanged since the Council’s previous interest rate decision. However, due to the rise in the outlook for inflation, an increasing number of central banks have indicated that they would stand ready to tighten monetary conditions when necessary.

Hungarian economic growth continued in the third wave of the coronavirus pandemic. According to the HCSO’s preliminary release of adjusted data, Hungary’s GDP grew by 1.9 percent in the first quarter of 2021 relative to the previous quarter, but it was 1.8 per cent below the level of a year earlier. Incoming data substantially exceeded market expectations and the projection in the MNB’s March Inflation Report. Economic growth during the quarter was driven mainly by industry, financial and insurance activities as well as the information and communication sectors.

The vaccination coverage rate of Hungary’s population is at the top in the European Union; therefore, restrictive measures have started to be lifted gradually. As a result of the earlier opening than the European average, the restart of the economy is expected to pick up significantly in the second quarter, which will support a rapid recovery of Hungarian GDP. Real-time data point to double-digit economic growth in the second quarter.

The Hungarian economy exhibits the potential for a strong recovery. In 2020, the business investment rate stood at a high level of 27.3 percent. In March 2021, the unemployment rate continued to decline relative to the previous month and it remained low by international standards. Wage growth remained dynamic despite the pandemic. 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.

According to the MNB’s projection in the March Inflation Report, GDP is expected to rise by between 4 and 6 percent in 2021. Based on incoming data, in the Bank’ assessment, GDP growth in 2021 is expected to be in the upper range of the March projection band, close to 6 percent. Following the reopening, Hungary’s economic performance is expected to reach pre-pandemic levels no later than in the fourth quarter of 2021.

In April 2021, annual inflation was 5.1 percent, and both core inflation and core inflation excluding indirect tax effects stood at 3.1 percent. Inflation and core inflation excluding indirect tax effects rose by 1.4 percentage points and 0.3 percentage points, respectively, relative to the previous month. The rise in inflation primarily reflected an increase in excise taxes on tobacco and rises in fuel prices. The increase in fuel prices and excise duty effects accounted for a total of 3.0 percentage points of inflation in April.

Inflation is likely to be volatile in the coming months. Spikes in inflation occur due rising fuel prices, effects arising from increase in excise duties in April and demand-supply frictions as the economy restarts.

According to the April EDP notification, the accrual-based government deficit was 8.1 percent of GDP in 2020 due to the coronavirus pandemic. As a result, gross government debt increased temporarily to over 80 percent of GDP in 2020 after falling steadily since 2011; 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 which have continued to rise recently.

Outstripping expectations, the current account was in 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 capacities. With the capital account strongly in surplus, Hungary’s net lending is expected to improve significantly and net external debt to continue to fall further.

In the Monetary Council’s assessment, the MNB’s government securities purchase programme has been successful even during the third wave of the pandemic and in a volatile international financial market environment. Purchases by the Bank have contributed to maintaining a stable liquidity position in the government securities market and improved the effectiveness of monetary policy transmission. In the Monetary Council’s assessment, the government securities purchase programme remains crucial. An increase in global reflation concerns could lead to heightened uncertainty in the government securities market again; therefore, the MNB will continue to use the programme by maintaining a lasting presence in the market, taking a flexible approach to changing the quantity and structure of weekly securities purchases, to the extent and for the time necessary.

In the process of economic recovery the FGS Go! and the Bond Funding for Growth Scheme have been of key importance. The optimal size and structure of the programmes are continuously assessed by the Monetary Council. 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 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 June. Through an active market presence, the MNB cushions the spillover of tensions in international swap markets to the domestic market, thereby contributing to preserving the stability of monetary conditions and through this to maintaining price stability.

In the Monetary Council’s assessment, the upside risks related to the outlook for inflation have generally increased. A sustained rise in commodity prices and international freight costs result in a higher external inflation environment. Temporary demand-supply frictions due to the rapid restart of the domestic economy, renewed tightening of labour market capacities expected in certain sectors combined with dynamic wage growth have increased inflation risks.

The Monetary Council continues to be committed to maintaining price stability. It is the Bank’s clear intention to prevent the current uncertain environment from causing a sustained rise in inflation. In the Monetary Council’s assessment, risks to the outlook for inflation have recently continued to strengthen even further. The projection in the June Inflation Report will be key in assessing the outlook for inflation and developments related to the economic recovery. The Monetary Council reiterates that they are ready to tighten monetary conditions in a proactive manner to the extent necessary in order to ensure price stability and to mitigate inflation risks.

The abridged minutes of today’s Council meeting will be published at 2 p.m. on 9 June 2021.


Monetary Council