Band Krisztina Than and Gergely Szakacs

BUDAPEST, April 26 (Reuters) – Hungary’s central bank raised its key rate by another 100 basis points to 5.4% HUINT=EIC Tuesday, responding to the rise in inflation which is at its highest level in two decades.

The National Bank of Hungary forecasts that average inflation could reach 7.5% to 9.8% this year, and with rising energy costs and the war in neighboring Ukraine fueling further pressures on prices, it faces the challenge of fighting inflation while maintaining strong momentum in Hungary. economy.

Hungary started to tighten its policy last June, when its key rate was only 0.6%. Tuesday’s rise, which followed a 100 basis point rise in March, was in line with a Reuters poll.

the forint EURHUF=D3 strengthened to 374.40 from 374.85 when rates were announced.

Headline inflation in March came in at 8.5% a year against a market-expected 8.7% rise as government-imposed price caps on fuel, household energy, some staple foods and mortgages limiting price growth. The government said that without these measures, inflation would be around 13%.

However, core inflation in March hit its highest level in more than two decades, signaling strong underlying price pressures in the economy where domestic demand is supported by rapid increases in wages and tax breaks given to families earlier this year.

The central bank said strong domestic demand could partly offset the negative effects of the Russian-Ukrainian war on growth. Earlier on Tuesday, wage data showed average gross wages in Hungary rose 31.1% in February after a 14.2% year-on-year increase in January.

Wage growth was fueled by a one-time payment of six months’ salary to members of the military and police as well as previously announced wage hikes and a rise in the minimum wage ahead of the April 3 parliamentary election. The election earned nationalist Prime Minister Viktor Orban a resounding victory and a fourth consecutive term.

(Reporting by Krisztina Than and Gergely Szakacs; Editing by Susan Fenton)

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