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Central Bank May Spike Interest Rates to Protect Forint

picture of MNB logo

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.


Posted in Economy

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