A Third Hungarian Rate Hike with a Hint of More to Come

January 24, 2011

Officials at Magyar Nemzeti Bank raised the Hungarian Base Rate by 25 basis points for a third straight month and suggested further increases could occur in the future.  A statement from the central bank reiterated a need to guard against rising inflation expectations because CPI inflation has been well above the 3% target and likely to stay so due to cost-push pressures and elevated food and energy costs.  CPI inflation rose to 4.7% last month from 4.2% in November and 3.7% in August.  Hungary’s economy continues to recover, led by net foreign demand, but will be operating below full capacity for the duration of the inflation target period.  Another reason for the caution of Hungarian monetary policy makers is to support investor confidence, which otherwise could be shaken by the government’s public finances.  Prior to the first rate increase in November, the Base Rate had been at 5.25% since April 2010.  625 basis points of reduction were engineered from November 2008 through April 2010.  Next month’s policy announcement is set for the 21st.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.

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