Hungary’s rate hike “far from over,” says central banker
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Hungary is “far from the end” of its quest for higher borrowing costs, central bank deputy governor Barnabas Virag said after a surprise decision to slow down one of the campaigns Europe’s most aggressive interest rate hike triggered a week-long drop in the forint. The currency strengthened.
Virag reiterated that the bank plans to continue raising the benchmark rate by 15 basis points per month, compared to the three movements of 30 basis points from June to August.
But his comments suggest the tightening could last until next year and he said the National Bank of Hungary was looking to reduce the liquidity of the forint via swaps “more aggressively than before”.
“The stance of the BNH’s monetary policy continues to tighten further,” Virag told reporters on the sidelines of a conference in Warsaw on Friday. “It’s a long way, and I think we’re a long way from the end.”
The forint strengthened 0.4% to 358.1 against the euro at 2:04 p.m. in Budapest. The currency had fallen for six consecutive days and is now 1.55% weaker since the September 21 rate decision, making it the worst performance in emerging markets after the Chilean peso and the Brazilian real. Virag said “the recent volatility of the forint should not be overstated”.
Hungary’s decision to slow rate hikes while raising its inflation expectations last month surprised investors and contrasted with the Czech central bank, which stepped up its tightening campaign on Thursday by raising the benchmark rate by 75 basis points, the largest increase in 24 years. Poland, meanwhile, has chosen to avoid any tightening.
Budapest’s central bank is also cutting back its bond buying program and has announced a plan to phase out injections of forint liquidity through the swap market, which would help tighten monetary conditions.
Virag suggested these market operations would play a bigger role in the future and said the central bank was working on “new solutions” to help stabilize the currency swap market and “improve the efficiency of the currency swap market. monetary transmission “.
(Updates with trade commentary in second paragraph, regional context in fifth.)
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