Hungarian central bank has raised interest rates by a huge amount

Hungarian rate-setters (NBH) raised the base rate by 185 basis points to 7.75 percent at a monthly policy meeting on Tuesday.

The policymakers also expanded the two sides of the interest rate corridor by 135 basis points, with overnight deposits set at 7.25 percent and secured loans at 10.25 percent.

The Council also decided on Tuesday to raise the O/N deposit rate by 135 basis points to 7.25 percent and the O/N and one-week collateralised loan rates by 135 basis points to 10.25 percent.

The O/N deposit rate and the collateralised loan rate mark the bottom and the top, respectively, of the central bank’s “interest rate corridor”. The base rate is paid on mandatory reserves.

“The [NBH] started the cycle of interest rate hikes one year ago, first among the central banks in the European Union. The further rise in inflation and persistent inflation risks warrant the decisive continuation of the tightening cycle,” the Council said in a statement released after the meeting.

The Council reiterated that maintaining tighter monetary conditions for a longer period is warranted to manage increasing second-round inflation risks resulting from persistently negative supply effects.

“The Monetary Council will continue the cycle of interest rate hikes until the outlook for inflation stabilises around the central bank target in a sustainable manner and inflation risks become evenly balanced on the horizon of monetary policy,” they said.

The central bank raised its average annual inflation forecast for 2022 to 11.0-12.6 percent from a 7.5-9.8 percent forecast earlier in March.

GDP growth in 2022 is expected to reach 4.5-5.5 percent, higher than the NBH’s earlier estimate of 2.5-4.5 percent.

At a press conference after the meeting, National Bank of Hungary Deputy Governor Barnabas Virag said the NBH will be focusing on the fight against inflation “as the only thing worse than high inflation is prolonged high inflation.”

Virág said inflation could peak in the autumn and therefore further decisive and sustained interest rate increases will be needed in the coming months. The NBH is going forward month by month and will continuously make the decisions needed to achieve price stability, he added.

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Source: MTI