Hungarian central bank raises the base rate to 1.8 percent, according to estimates

by   CIJ News iDesk III
2021-10-20   10:06
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As expected, the Hungarian central bank raised its key interest rate by 15 basis points to 1.8 percent today. It thus decided to maintain a stable pace of monetary policy tightening even after inflation accelerated to its highest level in nine years in September. The decision to raise rates by 15 basis points was predicted by 21 of the 22 economists surveyed by Reuters. One expected a tightening of 30 points. At the accompanying press conference, the bank reached for a hawkish tone and promises further tightening.

In June, just two days before its Czech counterpart, the Hungarian National Bank (MNB) was the first in the European Union to begin a cycle of tightening monetary conditions and has since raised rates at each monetary meeting, which takes place once a month.

At the time of the MNB's meeting, Prime Minister Viktor Orbán's chief economic adviser said that the cycle of tightening the MNB's monetary policy was "half-hearted" compared to the government's massive fiscal stimulus, leading to disagreements between the government's and central bank's economic policies.

In a subsequent press conference today, the MNB stated that it will continue its regular monthly cycle of rate hikes until inflation stabilizes on targets and the risks are balanced.

The Hungarian economy - like other countries in Central Europe - is facing soaring energy prices, a tight labor market and wage growth . At its last meeting in September, the MNB slowed the pace of rate hikes to 15 basis points, and the forint has weakened significantly since then.

"The inflation outlook ... has deteriorated since the last meeting," CIB Bank analysts said before Tuesday's meeting. Year-on-year inflation in Hungary accelerated to a nine-year high of 5.5 percent in September, while the core inflation index monitored by the central bank rose to 4 percent, the upper limit of its tolerance band between 2 percent and 4 percent.

The MNB said today that inflation will continue to accelerate in the autumn. At the same time, the bank expects inflation to stabilize at the 3% target in the second half of next year.

Source: Reuters