Hungary Central Bank Hikes Key Rates For Second Straight Time

Hungary's central bank raised its key interest rate for the second straight month as inflation continued to stay above the target.

The Monetary Council of the Magyar Nemzeti Bank on Tuesday decided to lift the benchmark base rate by 30 basis points to 1.20 percent from 0.90 percent. Economists had expected a hike to 1.10 percent.

The bank had raised its base rate by 30 basis points last month, which was the first since December 2011.

The overnight central bank deposit rate was lifted by 30 basis points to 0.25 percent and the one-week collateralized loan rate was hiked by 30 basis points to 2.15 percent.

The bank expects inflation to fall gradually in the coming months, but to stay above the central bank's tolerance band until the end of 2021. Inflation is projected to fall back to the tolerance band again at the beginning of 2022.

Policymakers observed that risks to the inflation outlook remain on the upside.

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

The decision by the central bank to raise its base rate by a larger-than-expected 30 basis points sends a strong message about its intention to deliver a "decisive, proactive and front-loaded [tightening] cycle", Liam Peach, an economist at Capital Economics, said.

With inflation likely to remain above its upper tolerance level until early 2022, the risks to the forecast for an additional 50 basis points of rate hikes by early next year are firmly to the upside, the economist added.

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