BUDAPEST (Reuters) -As expected, Hungary’s central bank raised the rate for a one-week deposit by 30 basis points (bps) to 6.75 percent on Thursday. This is part of the bank’s effort to slow down inflation, which is expected to reach double digits in the coming months.
The Hungarian forint has been close to its lowest level against the euro in three months since the National Bank of Hungary (NBH) raised its base rate by 50 basis points (bps) to 5.9% on Tuesday. This was half the rate of rate increases in recent months.
But the NBH said it would keep the money supply tighter for a longer time to protect against rising risks of second-round inflation and keep inflation expectations stable.
Rising energy costs, a tight job market, fast wage growth, and the war in the neighboring Ukraine are all putting pressure on prices. This makes it hard for the NBH to fight inflation while keeping the economy going strong.
At the same time, the forint has lost about 7% of its value this year because investors are worried about EU disputes that are holding up recovery funds. Last week’s announcement of new windfall taxes on banks and other companies has also hurt investor confidence.
“The smaller increase to the base rate on Tuesday was balanced by slightly more hawkish comments from deputy governor Barnabas Virag after the meeting,” Deutsche Bank (ETR:DBKGn) said in a note. Virag promised to keep the same rate of increases to the 1-week deposit rate and hinted at more increases in the second half of the year.
“We expect that the base rate will continue to go up by bigger amounts,” the bank said. “This will bring the two rates closer together over the next few months.”