Hungary increases EU’s highest key interest rate

Bloomberg

Hungary resumed raising the effective interest rate after the central bank said that the war in neighbouring Ukraine will lead to a sharply
deteriorating inflation outlook.
The 30 basis-point increase brought the one-week deposit rate to 6.15%, matching the median estimate in a Bloomberg survey. But it disappointed currency traders after policy makers spoke of the need of a bigger and longer monetary-tightening cycle earlier this week. The forint erased gains against the euro.
Hungarian rate setters said they needed to intensify what is already the European Union’s most aggressive tightening campaign to combat the inflation.
They expect consumer price growth to average as high as 9.8% this year, compared with a 3% target. Hungary’s key interest rate is the highest in the EU.
The forint dropped 0.3% against the euro after the rate decision, erasing earlier gains and underperforming regional peers the Czech koruna and Polish zloty.
The central bank has raised the key interest rate by 185 basis points since Russia invaded Ukraine a month ago.
Hungary’s key interest rate may peak at 7%, according to analysts at OTP Bank Nyrt., who flagged in a report on Wednesday that risks to that risks to their forecast are tilted to the upside as even more tightening may be needed to bring inflation under control.