September 21, 2021
By Krisztina Than and Gergely Szakacs
BUDAPEST (Reuters) – Hungary’s central bank raised its base rate by 15 basis points to 1.65% on Tuesday, delivering its fourth rate hike in a row to curb higher-than-expected inflation as the economy rebounds strongly from the effects of the pandemic.
But the bank slowed the pace of its tightening after three 30 bp hikes in the past three months. Its rate hike on Tuesday was smaller than the median forecast of analysts for a 25-bp rate increase.
In June, the National Bank of Hungary (NBH) was the first in the European Union to start raising rates, and last month it also slowed its government bond purchase programme.
Like much of the world, Central Europe is suffering inflation pressure due to supply shortages and higher energy costs, but its economies are also gaining speed and labour markets are tightening, putting upward pressure on wages.
Hungary’s August annual headline inflation was 4.9%, overshooting the central bank’s 2-4% target range as the economy recovers faster than expected.
The Hungarian bank also raised its overnight deposit rate by 15 basis points to 0.7% on Tuesday.
In a statement at 1300 GMT, the bank is due to announce its fresh inflation forecasts and a potential further cutback in its QE programme after Hungary unexpectedly issued an international foreign currency bond last week.
Economists say the bank has no choice but to continue its tightening campaign as inflation is not expected to peak until later this year before starting to slow next year.
The median forecast of 21 economists in a Sept. 13-15 Reuters survey projected the NBH delivering a 25-bp rate rise on Tuesday. But the forecasts projected four possible outcomes: a 15-, 20-, 25- and 30-bp increase.
“We think the National Bank of Hungary needs to deliver firm steps at the Sept. 21 MPC meeting to enhance the effectiveness of its monetary tightening efforts, as inflation remains elevated and the forint struggles to appreciate,” Bank of America said in a note before the meeting.
“In addition, we think the quantitative easing (QE) programme will likely be scaled back further.”
The forint eased to 354.50 from around 353 before the rate decision. The forint has weakened amid global market jitters from around 349 at the time of the August rate meeting – a depreciation that could add to inflation pressures.
Economists on average see inflation at 4.65% this year and3.55% next year.
(Reporting by Krisztina Than; Editing by Kevin Liffey and Catherine Evans)
Source: One America News Network
