FX.co ★ Hungary Central Bank Raises Rate Again

Hungary's central bank continued with the policy tightening in March, raising the interest rate further on Tuesday, in the backdrop of high inflation and the high uncertainty regarding the short-term economic outlook due to the Russia-Ukraine war.

The Monetary Policy Council raised the base rate by 100 basis points to 4.40 percent, the Magyar Nemzeti Bank said. Economists had forecast a hike to 4.15 percent. The overnight deposit and lending rates were also raised by 100 basis points each to 4.40 percent and 7.40 percent, respectively.

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

"In the Council's assessment, the outbreak of the Russia-Ukraine war has led to a further increase in upside risks to inflation: continued rises in commodity and energy prices point to a persistently high external inflation environment," the bank said.

"In addition, elevated inflation may persist for longer as a domestic inflationary effect if strong price dynamics are built into economic agents' expectations, resulting in second-round inflationary effects."

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

Based on the possible duration of the war and the policy of sanctions, the bank projected GDP growth of 2.5-4.5 percent for this year and 4.0-5.0 percent for next year. The economy is expected to expand 3.0-4.0 percent in 2024. Policymakers expect strong negative supply effects to drive inflation higher. Inflation is forecast to be between 7.5 and 9.8 percent in 2022 and between 3.3 and 5.0 percent next year. Price growth is expected to fall back to target in 2024.