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2021/12/07 / Erste Group Research

Economy to slow down amid tighter monetary conditions


Although Hungarian year-over-year growth was among the highest in the EU in 3Q21, the quarterly dynamics reflected the slowdown of the economy, which is also affecting 4Q. Hence, we have revised our forecast for 2021 annual GDP growth downward to 6.7%. Inflation climbed higher than expected, and could peak in November above 7%, due to both core and non-core factors. The yearly average index could be around 5% this year and the pressure is expected to ease just slightly next year, as a result of domestic and external processes.

In September, the MNB slowed the pace of rate hikes despite the approaching inflation acceleration. The moderation left the market unsatisfied. This - coupled with increased global risk aversion - has led to intensifying volatility and weakening of the forint. In November, the policy changed significantly: the base rate was raised by 30bp, and they reactivated the one-week deposit rate as an effective rate to mitigate volatile market turbulence on a weekly basis. The cumulated rise in effective rates has been well above the magnitude of policy rate increases via the changed toolkit. Tightening would continue next year with the phase-out of QE.


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General information

AuthorErste Group Research
Date2021/12/07
Languageen
Product nameCEE Country Macro Outlook
Topic in focusFX, Macro/ Fixed income
Economy in focusHungary
Currency in focusHungarian Forint
Sector in focus-
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