BUDAPEST: The National Bank of Hungary raised its base rate by 50 basis points to 2.9% on Tuesday, the highest in eight years, with average inflation this year forecast at its strongest in a decade.
The decision by the NBH, which also raised its overnight deposit rate by 50 bps to 2.9%, exceeded analyst forecasts for a 30 bps increase in both rates in a Reuters poll last week.
At 1310 GMT, the forint was trading at 359.4 versus the euro, stronger than 360.1 just before the announcement.
The currency fell to three-week-lows this week, paring its gains for the year, as growing tensions on Ukraine's border with Russia and NATO reinforcing its presence in eastern Europe weighed on markets.
Hungarian inflation held at a 14-year high of 7.4% in December, defying expectations of a slowdown and highlighting persistent price pressures in central Europe which have forced the region's central bankers to hike rates.
"The central bank forecasts that inflation has peaked and that the real interest rate will inch up from here, as inflation will moderate while interest rates will continue to rise," said economist Tatha Ghose at Commerzbank.
"We, however, think that the central bank is lagging behind the curve: true, inflation will likely peak soon, but this could be at a much higher level than (NBH) had anticipated."
Analysts polled by Reuters expect economic growth to slow to 4.8% this year from the more than 6% expected for 2021, while average inflation over the year is seen climbing to 5.5% from 5.1%, the highest since 2012, an uncomfortable mix for Prime Minister Viktor Orban.
Facing the prospect of a closely fought election on April 3, Orban announced new price curbs on some basic foods this month, extending caps already in place for energy, fuel and mortgages ahead of the vote.
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