BUDAPEST, (Reuters) – Hungary’s central banks raised interest rates on Thursday in an effort to curb rising inflation. However analysts believe that Prime Minister Viktor Orban’s decision to limit retail mortgage interest rates may undermine his efforts.

National Bank of Hungary (NBH), which raised its weekly deposit rate 20 basis points, to 3.8% on Thursday in a tender. It is continuing a series of interest rate rises each week to combat rising inflation.

Orban stated on Wednesday, however that the government would not raise retail mortgage interest rates beginning in January. This is to help households avoid higher borrowing costs.

Last week the bank raised its base rate 30 basis points to 2.4%. This is its highest rate since May 2014. It also promised further rate increases next year in order to support rising inflation expectations.

One-week deposit rates, which are used by the bank to address short-term volatility in the market, currently sit at 305 basis points higher than their June levels, when they began tightening policies. This is also supported by the Budapest interbank rate.

The forint fell 0.3% due to the mortgage rate cap, and some investors were disappointed by the increase. It is now within reach of 372 euros, its record low, reached in November.

Orsolya Neste, an economist at Erste Bank wrote in a note that “Announcements by PM Orban regarding the freezing of mortgage interest rates at their October level at least until June could substantially undermine efforts…to tighten monetary conditions.”

Emailed questions regarding how mortgage rate measures would influence the conduct of policies were not responded to by the press office at the central bank.

Inflation in Hungary rose to 7.4% in November, a record high for the country, and was higher than expected due to increased fuel, alcohol, and tobacco prices. Prices for services increased 4.6%

According to economists at Goldman Sachs’ (NYSE:), despite having increased (the one week rate) 200bp by the end of a month, forint remains virtually the same as the euro ever since it started weekly rises.

Reuters analysts polled expect that the 1-week deposit rate will increase to 4.3% before the end of quarter two, when the mortgage interest rate freeze expires.

Erste Investment economists stated that the move in the mortgage rates, following a three month cap on gasoline prices, would hurt the effectiveness of monetary policies, since borrowers would not be subject to higher fuel costs.

Hungary’s OTP Bank shares fell to five month lows on Wednesday. However, they rebounded and traded 3.3% higher at 16,115 Forints ($49.42). At 1049 GMT, the Budapest bluechip index outperformed.

In light of potential financial impacts, Erste economists stated that Wednesday’s fall in OTP’s share price was too much.

($1 = 326.07 forints)