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Financial News: Hungary Central Bank Raises Rate Again

Hungary Central Bank Raises Rate Again

11/16/2021 - 12:08:00 (RTTNews)

(RTTNews) - Hungary's central bank raised its key interest rate again and signaled that it will be hiked in coming months, citing persistent inflationary pressures. The Monetary Council decided to hike the central bank base rate by 30 basis points to 2.10 percent, the Magyar Nemzeti Bank said in a statement on Tuesday The previous change in the rate was a 15 basis point hike in October. "A persistent rise in external inflationary pressures and increasing second-round inflation risks have necessitated more extensive and longer lasting monetary policy tightening," the bank said. "The Council still considers it necessary to continue the interest rate tightening cycle on a monthly basis."

Policymakers expect inflation to rise above 7 percent in November. They assessed that higher commodity prices are rapidly being incorporated into consumer prices in a buoyant domestic demand environment, leading to rising inflation in general.

"In addition to the lasting effects of supply, the pick-up in wage growth next year due to the increase in the minimum wage and strong economic growth, the consumer price index is expected to decline only slowly from the end of this year," the bank said.

Hence, inflation is expected to be substantially higher in 2022 as a whole than projected in the September Inflation Report, the bank said.

Policymakers assessed that inflation is clearly on an upward path along the risk scenarios compared to the September projection and the December forecasts is set to give a clearer picture.

Inflation is set to remain high due to persistently high commodity and energy prices, rises in international freight costs and increasingly wider supply disruptions continue to point to a higher and more persistent external inflation environment. The tight labor market, coupled with strong wage growth and a higher inflation environment, may lead to increases in inflation expectations and to strengthen second-round inflation risks, the bank said.

Official data released earlier Tuesday showed, GDP grew by 6.1 percent year-on-year in the third quarter, which meant output was 0.7 percent above its pre-crisis level. The country's economy is expected to grow between 6.5 and 7 percent this year and by between 5 and 6 percent in 2022.

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