Hungarian central bank leads EU with first post-COVID rate hike
BUDAPEST (Reuters) – The National Bank of Hungary (NBH) raised its key rate by 30 basis points to 0.9% on Tuesday, slightly beating expectations, to deal with rising price pressures amid faster than expected recovery of the coronavirus pandemic.
The move, which follows a warning from major central bankers that a cycle of rate hikes would begin this month to stop inflation from rising, beat consensus expectations for a 25 basis point increase in a Reuters poll.
BNH, the first central bank in the European Union to hike rates in the aftermath of the COVID-19 crisis, left the interest rate on its overnight deposit rate at -0.05%, as planned.
At 12:19 GMT, the forint was trading at 355.35 per euro against 354 just before the announcement. It is also a far cry from its highest levels around 345 affected earlier this month in anticipation of the rate hike.
Foreign currency traders said the forint eased amid continued uncertainty over the bank’s next move on the one-week deposit rate, which at 0.75% is now below the rate. basic. Its next scheduled review is scheduled for Thursday during a weekly tender.
Reflecting the high degree of uncertainty surrounding the decision, forecasts for Hungary’s first base rate hike in almost a decade ranged from 15 to 30 basis points in last week’s survey, although some economists said subsequently expected an even larger increase.
The central bank will issue a policy statement and updated economic forecast at 13:00 GMT.
“With the recovery expected to strengthen and inflation likely to rise further in the coming quarters, we expect further interest rate hikes in the second half of this year,” said economist Liam Peach. from Capital Economics.
“We don’t have the impression that the (NBH) will want to tighten its policy aggressively, but with inflation expected to stay outside its tolerance band until early 2022, we think the hikes in September and perhaps December rates are the most likely results. “
The BNH, of which Governor Gyorgy Matolcsy is a key ally of Prime Minister Viktor Orban, has gradually lowered its benchmark base rate to support the economy in recent years, to a record low of 0.6%.
However, as the economy quickly recovered from the third wave of the pandemic, inflation also exceeded expectations, while an expansionary budget passed for the 2022 election year compounded the bank’s concerns about the inflation.
Hungary’s economy is expected to post double-digit growth in the second quarter, while annual headline inflation stood at 5.1% in May, unchanged from April and well above the bank’s target range of 2 % to 4%.
Budapest office report; Writing by Gergely Szakacs; Editing by Emelia Sithole-Matarise