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2021/09/10 / Erste Group Research

Monetary tightening to continue amid faster recovery and higher inflation

The 2Q21 GDP figures confirmed that the economy is reviving quickly from the epidemic crisis. Both domestic and external demand are set to remain stable growth drivers. We have revised upward our forecast for this year's annual GDP growth to 7.5%. Inflation accelerated considerably this year, with the annual average rate to be rather close to 5% this year. A decline of inflation should only happen next year; however, thanks to the higher level of imported inflation and some internal factors, such as wage development and the expansive fiscal policy, risks pointing to the upside remain relevant.

The MNB reacted to the increased inflation risks via carrying out a tightening of its monetary policy this summer. The policy rate was raised to 1.50% by end- August. Further rate hikes are in the pipeline and the base rate should be raised above 2% by the year-end. Meanwhile, the MNB started to phase out its longer-term instruments connected to the coronavirus crisis and slow tapering of the MNB’s QE started at the end of the summer. Stricter monetary policy has helped the forint exchange rate to stabilize at a somewhat stronger level; however, the sensitivity of the domestic currency has hardly changed.

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General information

AuthorErste Group Research
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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