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Central Bank May Spike Interest Rates to Protect Forint

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Inflation looks so worrisome to the Hungarian National Bank (MNB) that the central bank may have to raise interest rates by as much as 1 percentage point on Tuesday, according to analysts who spoke with Népszava.

The central bank’s base rate is currently 1.8%, but is expected to exceed 2.5% on Wednesday, and may even soon approach 3%.

No monetary tightening of this extent has been carried out since the financial crisis of 2008, when Hungary was close to bankruptcy. At that time, the central bank raised the rate 3 percentage points, from 8.5% to 11.5%.

András Vértes of GKI Economic Research Zrt. said that current problems are caused by inflation due to the coronavirus crisis. In such a situation, the MNB really cannot do anything else but raise rates, he said.

Financial market analysts also expect a strong interest rate hike if for no other reason than to stabilize the forint exchange rate. On Friday, the Hungarian forint hit an eight-month low against the dollar and the Euro.

[Népszava]

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Posted in Economy

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