Hungarian central bank raises base rate to 18-year high – UPDATE

Hungarian rate-setters raised the central bank’s base rate by 100 basis points, to 11.75 percent, at a regular policy meeting on Tuesday.

Currently, the base rate is higher than it was during the 2008 financial crisis, when it peaked at 11.5 percent after an extraordinary rate hike between 22 October and 25 November 2008.

The last time the base rate was at a level similar to the current one was in May 2004 (when the 12.5% level reached at the turn of 2003-2004 was gradually reduced).

The Monetary Council also decided on Tuesday to raise the O/N deposit rate by 100 basis points to 11.25 percent and the O/N and one-week collateralised loan rates by 100 basis points to 14.25 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 decision was in line with expectations.

“The further rise in inflation and persistent inflation risks warrant the decisive continuation of the tightening cycle,” the Council reiterated in a statement released after the meeting.

“Maintaining tighter monetary conditions for a longer period is warranted to manage increasing second-round inflation risks resulting from persistently negative supply effects,” they added.

The Council reiterated that the tightening cycle will continue “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”.

Olli Rehn, a member of the Governing Council of the European Central Bank (ECB), believes that the ECB has to implement new measures to stop the record-high inflation in the European Union. Furthermore, the weak euro against the American dollar worsens the energy crisis. Drastic measures seem to be inevitable. However, such decisions might mean the further weakening of the Hungarian forint, details HERE.

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