## Monetary Policy Analysis with a Quarterly Projection Model: Hungary

_Selected Issues Papers, August 13, 2024_

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**Canonical URL:** [Monetary Policy Analysis with a Quarterly Projection Model: Hungary](https://www.imf.org/en/publications/selected-issues-papers/issues/2024/08/12/monetary-policy-analysis-with-a-quarterly-projection-model-hungary-553496)

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## Bibliographic details
- Authors: Chris Jackson
- Published: August 13, 2024
- Series: Selected Issues Papers

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### Executive summary
- The calibration of monetary policy is particularly challenging at a time of large shocks.
- Interest rates in Hungary rose sharply in response a significant increase in inflation and depreciation in the forint in 2022.
- As inflationary pressures have eased, the base rate has been reduced but remains restrictive.
- Balancing the risks of loosening too quickly and inflation taking longer to return to target against those of loosening too slowly with larger costs to output requires careful calibration.
- This paper uses a Quarterly Projection Model to provide a quantitative guide to the calibration of monetary policy in Hungary.
- As underlying inflation remains elevated and second-round effects continue to push up services inflation, the model suggests that further cuts in interest rates should proceed cautiously and gradually.

### Key findings
- Interest rates increased sharply in 2022 in response to inflation and forint depreciation.
- The base rate has been reduced as inflationary pressures eased but continues to be restrictive.
- Underlying inflation remains elevated.
- Second-round effects are continuing to push up services inflation.
- The Quarterly Projection Model provides quantitative guidance for calibrating monetary policy under these conditions.

### Policy implications and recommendations
- Proceed cautiously and gradually with further cuts in interest rates.
- Carefully balance:
  - The risk of loosening too quickly, which could delay the return of inflation to target.
  - The risk of loosening too slowly, which could impose larger costs on output.

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_Source: https://www.imf.org/en/publications/selected-issues-papers/issues/2024/08/12/monetary-policy-analysis-with-a-quarterly-projection-model-hungary-553496_