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Hungary central bank hikes rates, vows ‘decisive’ fight against inflation By Reuters

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© Reuters. FILE PHOTO: The Hungarian flag is displayed on the National Bank of Hungary building in Budapest, January 10, 2013. REUTERS/Laszlo Balogh

Gergely Szakacs and Krisztina Than

BUDAPEST, (Reuters) – Hungary’s central banks raised their benchmark rate to 1.8% on Tuesday as anticipated and promised to take decisive action against inflation risk.

Barnabas Virag, Deputy Governor, stated that Hungary’s labor market was tight, the rising cost of living and inflationary shocks are all dangerous. The National Bank of Hungary is determined to reduce second-round inflationary effects.

According to him, the bank will continue raising interest rates every month for as long as necessary. The tightening of the market would also continue into 2022.

Virag stated that they are not preparing for a sprint but for a long-distance run after the rate meeting. He also said that monetary policy will remain active.

“We will continue our efforts to combat inflation risks in the strongest possible way.”

When the rate-setters met in person, Viktor Orban, the chief economic advisor to Viktor Orban, stated that the bank’s tightening cycle had been “halfhearted” when compared with his massive fiscal impulse. The result was a policy divergence.

After a decrease in last month’s purchases, the bank announced that they would continue buying weekly bonds of 40 billion dollars. It also stated that further steps would be taken to ensure stability on the swap market.

According to Reuters, 22 of the 22 economists polled expected a 15% increase on Tuesday while the other one was expecting a 30% rise.

Hungarian, like other Central Europe economies are struggling to cope with rising energy costs and tight labour markets.

“Inflation will rise even more in autumn,” the central bank said. According to the statement by the central bank, the significant increase in commodity prices over the past weeks indicates a faster inflation path than was expected in September.

In September, headline inflation climbed to 5.5%, a record high for the month.

Although the central banks of the region have all increased their policies to curb inflation, they did so in different ways.

Markets were not expecting a 45 basis point increase from Poland’s National Bank in Czech last month.

In September, the Hungarian central banking slowed down its progressive tightening to 15 basis points. This has since led to a decline in the value of the forint currency.

After the comments by the bank, the forint fell to 362.25 against the euro from levels of around 360 prior to the rate decision.

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