Forint plunges to historic low as central bank hikes rate

Analysis

 

Hungary's central bank unexpectedly raised the benchmark interest rate by a quarter point to 6.25%, the first increase in 2 1/2 years, on concerned tax increases and the forint's weakness will fan inflation. Against the euro, the forint traded at 276.46 by 2:22 p.m. in Budapest, after sliding to a low of 276.60 per euro after the decision was announced. Just two of 13 economists surveyed by Bloomberg forecast an increase by the Budapest-based bank, one by a half point and the other by three quarters of a point. Inflation may accelerate to between 6% and 7% in 2007 from an estimated 3.3% this year, bank President Zsigmond Járai said, because of a proposed higher value-added-tax rate and increased energy costs. Central banks globally are raising rates as quickening economic growth and rising energy costs stoke inflation. The U.S. Federal Reserve is forecast to increase its benchmark rate for the 17th straight time this month. The European Central Bank on June 8 increased its rate for the third time in six months. (Bloomberg, NG 1, MH 1, Nv 1, Nb 14)

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