The Monetary Council (MC) of Hungary kept its key policy interest rate (3-month deposit rate; +0.9%) and the overnight deposit rate (-0.15%) again unchanged this week despite market concerns about rising inflation. Headline consumer price inflation rose to 3.6% y/y in September from 3.4% in August, the highest rate since January 2013, but still within the Central Bank’s 3% ±1pp target range. The MC notes that the uptick in headline inflation was mainly driven by sharp increases in fuel and food prices as well as some excise taxes while core inflation remained stable at 2.4% y/y. It expects the headline figure to return to the 3% target by mid-2019. It also reiterated that it was prepared for a future normalization of its policy. Euler Hermes expects monetary tightening to come in early-2019 as surging wage growth (+12.8% y/y in July) and rapidly rising private sector credit growth (+11.2% y/y in August, up from +2.6% at end-2017) should continue to put upward pressure on prices.
