Central bank hikes forint base rate to 8.25%

Analysis

At its latest meeting the Monetary Policy Council of Hungary’s central bank (MNB) reviewed the latest economic and financial developments and voted to raise the central bank base rate by 25 basis points, from 8.00% to 8.25%.

The council maintains its view that the Hungarian economy is characterized by subdued growth and a slow decline in inflation; and the further fall in inflation has been impeded by cost shocks of both domestic and international origin, the bank said in a press release.

The Monetary Council’s aim is to contain any second-round effects potentially arising from persistently high inflation and to prevent an increase in longer-term inflation expectations. Based on information which has become available recently, there continue to be risks to meeting the inflation target next year. One-off effects make it difficult to evaluate the latest wage data; however, taking these into account, the risk that the rate of wage growth will fall more slowly than expected earlier is significant, which, in turn, may add to cost-push inflationary pressure. For the time being, inflation data suggest little evidence that the negative output gap has had disinflationary effects on a wide range of goods and services prices.

In the Council’s judgment, inflation risks have made it necessary to raise the central bank base rate. The Monetary Council will continue to stand ready to take the necessary actions, in order to meet the Bank’s inflation target, the statement concludes. (press release)

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