Band Gergely Szakacs

BUDAPEST, April 22 (Reuters) – The National Bank of Hungary (NBH) is expected to raise its policy rate by another 100 basis points next Tuesday in response to a continued rise in inflation, which economists say is on track to average its highest level ever. since 2001.

The market sell-off following Russia’s February 24 invasion of Ukraine and an impending energy price shock in Europe due to a spike in global oil and gas prices are adding to undercurrent pressures. already strong underlyings on prices in the region.

Central European markets have largely recovered from their slumps in late February and early March, supported by massive central bank rate hikes across the region as price growth hit double-digit levels, reaching lows. levels not seen for decades.

The median forecast of 14 analysts in a Reuters poll from April 19-22 is for the NBH to raise its base rate HUINT=EIC to 5.4% from 4.4% next week, maintaining a steady upward pace despite a minor surprise on the downside to inflation in March.

The survey’s forecast, which calls for inflation of 9% this year, its highest since 2001, also included an increase of 75 basis points and 50 basis points in April.

A 100 basis point hike would make the tightening cycle launched last June by the Hungarian central bank the third steepest since the end of communist rule, surpassed only by a 600 basis point cycle almost two decades ago and a 900 basis point cycle in the mid-1990s.

“We see the BNH sticking to its March playbook. This means a 100bp hike to 5.40% in the base rate on April 26 and a 30bp hike to 6.45% in the deposit rate at 1 week on April 28,” ING economist Peter Virovacz said in a note.

“Forward guidance should remain hawkish as we expect the central bank to emphasize upside risks to inflation.”

Analysts now see the Hungarian base rate climbing to 7.4% by the end of this year, 120 basis points higher than just a month ago, which would be its highest level since the late 2009, before Prime Minister Viktor Orban took power in a landslide vote in 2010.

Price growth in March came in at 8.5% yoy compared to market expectations for an 8.7% increase, while core inflation hit its highest level in more than two decades, signaling strong underlying price pressures.

Nationalist Orban, re-elected for a fourth straight term this month, capped the prices of fuel, home energy, some staple foods and mortgages to limit price growth ahead of the vote.

Without these measures, some of which are due to expire next month, Hungarian inflation would reach 13%, a senior Orban official said on Thursday, even exceeding March’s 12.7% in the Czech Republic.

(Reporting by Gergely Szakacs; Editing by Catherine Evans)

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