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Financial News: Hungary Central Bank Raises Rates Further

Hungary Central Bank Raises Rates Further

07/26/2022 - 12:03:00 (RTTNews)

(RTTNews) - Hungary's central bank hiked its interest rates further on Tuesday and signaled more tightening ahead, as policymakers try to rein in high inflation expectations amid slowing growth.

The Monetary Council, led by Governor Gyorgy Matolcsy, lifted the base rate by 100 basis points to 10.75 percent, the Magyar Nemzeti Bank said.

The previous change in the key interest rate was a 200 basis points hike on July 12.

The central bank has raised the key interest rate in every policy session since June last year.

On July 7, the central bank had raised the raised the one-week deposit rate by 200 basis points.

"In the Monetary Council's assessment, it is warranted to tighten the base rate in a decisive manner in order to anchor inflation expectations and mitigate second-round inflation risks," the MNB said. "The MNB continues to stand ready to respond quickly and flexibly by setting the interest rate on the one-week deposit instrument if warranted by the rise in short-term risks in financial and commodity markets."

The central bank said policymakers will continue the cycle of interest rate hikes until the outlook for inflation stabilizes around the central bank target in a sustainable manner and inflation risks become evenly balanced on the horizon of monetary policy.

Policymakers expect inflation to return to the central bank tolerance band at the end of 2023, due to fading first-round effects of war tensions and amid a moderation in external inflationary effects moderate. Further, the inflationary effects of the tax measures announced in June will start to fade. The bank expects inflation to meet the 3 percent central bank target in the first half of 2024, underpinned by the proactive policy measures. The central bank forecast GDP growth of 4.5-5.5 percent this year and 2.0-3.0 percent next year. The economy is projected to expand 3.0-4.0 percent in 2024.

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