Hungary's central bank may raise its benchmark interest rate between scheduled policy meetings to stem a decline in the forint, the world's worst-performing currency this month, OTP Bank Rt said.
Policy makers may increase the rate to as much as 8.25% on July 3 when they convene for a non-rate-setting meeting, provided the forint declines further from a record low it reached yesterday, according to a note today by OTP, the nation's largest lender. The central bank on June 19 unexpectedly raised the benchmark two-week deposit rate by a quarter point, the first increase in two-and-a-half years, on concern tax increases and the forint's weakness will stoke inflation. The currency has since continued to decline and may prompt the bank to action. “In case the exchange rate weakens further, the Monetary Council may change the base rate as early as next Monday,'' OTP said. “The question now is not whether the bank will raise the rate, but how much and when.'' The forint traded at 282.58 as of 11:55 a.m. in Budapest, from a record 285.15 yesterday. It lost 7% this month, more than any other currency, on concern Prime Minister Ferenc Gyurcsány's plan to cut the budget deficit won't be enough to meet the government's targets. (Bloomberg)
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