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Hungarian central bank raises rates again to curb inflation, slows pace of tightening By Reuters


© Reuters. FILE PHOTO. The flags of Hungary and Europe fly at the National Bank of Hungary building in Budapest on January 10, 2013. REUTERS/Laszlo Balogh

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.

After three 30-bp rate increases in three months, the bank has slowed down its pace of tightening. On Tuesday, the bank raised rates by 25 basis points less than what analysts had predicted.

The National Bank of Hungary (NBH), which was first to raise rates in June of the European Union, also reduced its bond buying programme last month.

Central Europe, like much of the rest of the globe, is experiencing inflation pressure from higher energy prices and supply shortages. However, its economies are growing rapidly and labor markets are tightening which puts upward pressure on wages.

As the economy is recovering faster than predicted, Hungary’s headline inflation for August was 4.9%.

Also, Tuesday’s Hungarian bank raised its overnight rate to 0.7% by 15 basis point.

The bank will announce new inflation projections at 13:00 GMT. It may also reveal a possible further reduction in QE after Hungary issued an unexpected international currency bond.

According to economists, the bank cannot stop tightening its belt as inflation is unlikely to reach its peak later in the year. Then again, it may slow down next year.

In a September 13-15 Reuters survey, 21 economists projected that the NBH would increase its rate by 25 basis points on Tuesday. The forecasts for Tuesday showed four outcomes, namely a rate increase of 15 to 20 percent, 25 percent, and 30 percentage points.

Bank of America (NYSE 🙂 wrote that they believe the National Bank of Hungary should take concrete steps before Sept. 21 MPC to increase the effectiveness of their monetary tightening efforts. “Inflation remains high and the forint struggles with appreciation,” Bank of America stated.

We believe that the QE (quantitative easing) program will be reduced further.

After falling to 353 from the August rate meeting, the forint dropped to 354.50. Global market jitters have caused the forint to fall from 349 before the rate decision. This could lead to inflation pressures.

According to economists, inflation is expected to rise by 4.65% this year and 3.5% next year.

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