The hike had been predicted by a slim majority of analysts in a Reuters poll, as cheap money the National Bank of Hungary has pumped into the economy, combined with government tax cuts and wage hikes, has finally started feeding into higher prices.
Governor Gyorgy Matolcsy dampened market expectations of further monetary tightening, however, telling a news conference: "This is a one-off decision. We are not opening a cycle."
His remarks sent the forint tumbling to six-week-lows at 319 per euro. The currency has rallied since January on expectations that tightening would begin this month but softened earlier on Tuesday after the rate rise was smaller than expected.
Matolcsy said Tuesday's move was a "necessary but sufficient" measure to keep inflation in line with the bank's 3 percent medium-term target.
The central bank had until recently communicated a "gradual and cautious" process of policy normalisation.
Analysts in the March 14-21 Reuters poll had unanimously and correctly projected that the bank would leave its base rate unchanged at 0.9 percent at Tuesday's meeting.
Eight of the 13 analysts polled had said the NBH would start to raise its -0.15 percent overnight deposit rate, the lower end of the bank's interest rate corridor, although most foresaw a 15 bps rise to take the deposit rate to zero. Just two predicted the 10 bps hike.
Matolcsy, reappointed for a second six-year term this month, said the external economic environment posed downside risks to the outlook for price growth, while the domestic economy remained inflationary.
At 1511 GMT, the forint was trading at 318.70 versus the euro, sharply weaker than 315.78 before the rate announcement -- its biggest one-day fall in years.
The Monetary Council said it would also launch a 300 billion forint ($1.06 billion) corporate bond purchase programme from July, which it said was needed to boost the efficiency of policy transmission.
It will sterilise the excess liquidity created by the programme and reduce the amount of liquidity crowded out from its facilities by 100 billion forints in the second quarter.
"By taking these measures, the Monetary Council ensures the maintenance of price stability. The monetary policy stance will continue to be accommodative, economic agents' financing costs will remain favourable," the Monetary Council said.
The policy tightening to rein in core inflation marks a new chapter for the central bank, whose easing campaign had sparked a lending boom and supported Prime Minister Viktor Orban's efforts to boost growth. Matolcsy is an ally of Orban.
Core inflation measures are above the mid-point of the bank's 2 to 4 percent target range. Core inflation rose to a six-year-high of 3.5 percent last month.
"In our view, the cautious central bank approach leaves the door open to decisions aligned with future economic data and (the bank) will proceed only with the minimally required tightening," economists at CIB Bank said in a note.