Salem Radio Network News Tuesday, December 6, 2022

Business

Hungary raises key rate by 125 bps to 13% as looks to end hikes

By Gergely Szakacs and Krisztina Than

BUDAPEST (Reuters) – The National Bank of Hungary (NBH) raised its base rate by a larger-than-expected 125 basis points to 13% on Tuesday, with the bank now looking to chart an end to a more than one-year-long tightening cycle amid a slowing economy.

Central European policymakers are seeking to end a cycle of interest rate hikes running since last year even as inflationary pressures remain and the world’s major central banks keep pursuing higher rates.

Deputy Governor Barnabas Virag said last week that the NBH, which has raised its base rate by more than 1,200 bps since June 2021 to the highest level in central Europe, could consider ending its rate rise cycle after Tuesday’s meeting.

By 1219 GMT, the forint, central Europe’s worst-performing unit with a 9% loss versus the euro this year alone, firmed to 406.5 per euro from 407.85 just before the announcement.

Governor Gyorgy Matolcsy will hold a news conference at 1300 GMT, when the bank also publishes a quarterly update to its economic forecasts.

“It is likely the end of the rate hike cycle,” Peter Virovacz, an analyst at ING in Budapest said. “The question is whether this is a halt – or a just a pause in rate hikes, leaving the door open to potential further tightening.”

Economists polled by Reuters last week forecast the base rate rising to 14% by the end of this year.

The 125 bps increase brought Hungary’s benchmark to its highest since the turn of the century, with inflation on track to accelerate further from last month’s 15.6% pace after the government curbed a years-long cap on household utility bills.

Earlier this month, Prime Minister Viktor Orban’s government extended price caps on fuels and basic foodstuffs by three months until the end of the year in a bid to shield households from soaring costs.

Even with the price caps in place, however, analysts polled by Reuters see headline inflation averaging 13.6% this year, rising to 13.95% in 2023 before a retreat to 4.3% by 2024.

(Reporting by Gergely Szakacs and Krisztina Than; Editing by Alison Williams)

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