(Bloomberg) — Hungary raised its one-month interest rate for an eighth consecutive meeting after inflation failed to slow in line with the central bank’s forecasts.
The National Bank of Hungary boosted the required reserve rate to 2.9% from 2.4% on Tuesday, more than the median estimate in a Bloomberg survey of a 50 basis-point move.
Policy makers also raised the ceiling on the interest-rate corridor to 4.9% from 4.4% to make way for further monetary tightening via the weekly deposit rate, an instrument decided each Thursday that has displaced the one-month rate as the effective key rate.
The forint gained as much as 0.5% against the euro after the decision to 359.43 in response to the larger-than-seen tightening move.
A statement explaining the decision will be published at 3 p.m. in Budapest, and Deputy Governor Barnabas Virag will hold a briefing online.
The required reserve rate, set once a month, has been overtaken by the weekly deposit facility as the central bank’s key interest rate since it was raised above the reserve rate in November to fight currency depreciation. At 4%, it’s currently the highest key interest rate in the European Union.
The bigger-than-expected hike has either shown that the central bank intended to narrow the gap between the two rates, or that the central bank has stepped up the pace of its monthly tightening, Liam Peach, economist at Capital Economics said in a note to investors.
“As things stand, we expect a 50bp rise in the deposit rate on Thursday,” he said, referring to the 1-week rate. “We think further hikes will be delivered thereafter, taking short-term interbank interest rates to 4.50-5.00% in the coming months.”
Central bankers have continued to push for tighter monetary policy after headline inflation stayed at a 14-year high of 7.4% in December, matching the prior month despite central bank expectations that it would slow.
The core inflation rate, which strips out volatile food and energy cost swings, rocketed to the highest in 20 years, as record pre-election spending also boosted domestic demand.
Policy makers have vowed to feed any increase in the reserve rate into the weekly facility, which is set every Thursday. The weekly rate has been unchanged for the past three weeks after seven consecutive hikes helped shore up the forint, making it the best-performing emerging European currency this month.
(Updates with currency, economist comments throughout.)
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