Hungary's central bank raised interest rates for the second time in two months on Monday and said it may need further tightening in the next months to defend its inflation target. The quarter percentage point move brings the base rate to 5.75 percent and is seen by analysts as the bank's response to government pressure for it to do more to boost economic growth.
The bank's statement concentrated on the risks an improving economy will generate above-target inflation over the next two years. "The Monetary Council has decided to raise the base rate in light of inflation remaining persistently above the 3 percent target as well as the upside risks to inflation," the bank said in a statement after the decision. "In the coming months, the Council will decide whether to raise interest rates after weighing up the balance of inflation risks," it added.
The forint, which had priced in NBH tightening for the next months retreated around the rate decision, and short-term government bond yields rose 10-15 basis points. The NBH and analysts see inflation exceeding the bank's 3 percent goal in the next two years, partly due to an expected pickup in domestic demand, and also to inflationary pressures from special taxes levied on certain sectors of the economy.
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