Hungary Gets a Fifth Base Rate Increase

December 20, 2011

In response to heightened investor perceptions of Hungarian country risk, the Magyar Nemzeti’s base rate has been raised by 50 basis points for the second time in three weeks.  Previous increases of 25 bps apiece were implemented in March and December of 2010 as well as January of this year.  Moody’s cut its rating on Hungarian debt late last month to a non-investment grade of Ba1.  The forint has been subjected to selling pressure lately, so officials are compelled to rate the base rate, which is now at 7.0%, despite expectations of no growth in 2012.  A statement from the Monetary Council identifies upside inflation risks due to increased value-added and excise taxation as well as the impact of forint depreciation.  The door is left open to even more monetary restraint in the future should “risk perceptions and the outlook for inflation deteriorate significantly further.”

Before the current cycle of rate increases began in March 2010, officials during the Great Recession administered fourteen rate reductions from November 2008 through April 2009, which together totaled 625 basis points from 11.5% to 5.25%.

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

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