Press release on the one-week deposit rate increase on 7 July 2022

The primary objective of the Magyar Nemzeti Bank (MNB) is to achieve and maintain price stability. In recent days, the situation in financial markets has increased the risk of persistent inflationary effects, posing a threat to price stability. The effects of unfavourable financial market developments are increasing the risk of high inflation persisting longer than earlier expected. In the event of persistently high inflation, the current high rate of price increases might feed into economic agents’ expectations, making it more difficult to ensure price stability.

In order to avoid the above risk, it has become necessary to tighten monetary conditions further, and therefore the MNB has raised the one-week deposit rate by 200 basis points to 9.75 percent. Consistent with its strategy developed in June by the Monetary Council, it is considered necessary that the rise in the one-week deposit rate should be built into the base-rate tightening cycle as early as possible. The fast closing of the gap between the base rate and the one-week deposit rate will be discussed at the Monetary Council’s next meeting on 12 July.

At the one-week deposit tender announced today, bids amounting to more than HUF 9500 billion were accepted by the MNB. The liquidity absorbed in the one-week maturity instrument has increased significantly from a level of HUF 7,263 billion in the previous week.

The Bank considers it crucial that short-term rates in every sub-market, particularly in the swap market, and at all times develop consistently with the level of short-term rates deemed optimal by the Monetary Council. For this reason, the MNB will start using swap tenders providing foreign currency liquidity within quarters. The first tender will be held on Friday, 8 July 2022, with an overnight maturity. The details of the tender will be released at 9 am. By maintaining an active presence in the market, the MNB enhances the effectiveness of monetary policy transmission, thereby supporting the achievement and maintenance of price stability.

The MNB continues to constantly monitor developments in financial market risks and stands ready to intervene using every instrument in its monetary policy toolkit, if necessary, to achieve and maintain price stability.

MAGYAR NEMZETI BANK
Budapest, 7 July 2022