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Business & Finance

Hungary central bank leaves rates steady, as expected

  • Base rate 0.6%, O/N depo rate -0.05%.
  • Decision in line with expectations.
  • Bank could raise base rate at June meeting.
  • Hawkish turn a "game-changer" –analyst.
Published May 25, 2021
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BUDAPEST: The National Bank of Hungary (NBH) left key rates steady on Tuesday ahead of a watershed June meeting when it could deliver its first base rate hike in nearly a decade to rein in inflation as the economy recovers from the pandemic.

The bank left its base rate at 0.6% and the overnight deposit rate at -0.05%, in line with the unanimous forecast of economists in a Reuters poll.

At 1201 GMT, the forint traded at 348.80 per euro, a touch weaker than 348.45 just before the announcement. The unit has rallied to nine-month-highs at 347 versus the euro since the NBH flagged a possible increase in its base rate.

Deputy Governor Barnabas Virag said last week that monetary policy would enter a new phase from June as the economy fully reopens, and that the central bank will adjust short-term rates proactively to tackle rising inflation risks.

He said rate rises could precede any decision about the central bank's asset purchases and that the June inflation report would be critical in assessing risks.

"Describing this shift as a game-changer is not an understatement," said Liam Peach at Capital Economics. "We have now pencilled in a 30bp hike in the base rate to 0.90% in June."

"In order to snap the currency's depreciation trend and turn positive on the prospects for the forint, there would need to be appetite at the (NBH) to move away from deeply negative real interest rates."

Data published since the bank's April policy meeting showed inflation rising to 5.1% year-on-year, above market forecasts and overshooting the bank's 2% to 4% target range. The economy expanded by 1.9% from the previous three months in the first quarter, signalling a faster recovery.

The consensus forecast now sees the central bank raising the base rate by 30 basis points to 0.9% by the end of this year, delivering the amount of tightening last month's poll had predicted only by the end of 2023.

The base rate is seen rising to 1.15% by the end of 2022 and 1.3% by the end of 2023.

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