Hungary raises key interest rate

Bloomberg

Hungary raised its key interest rate after the currency falls close to an all-time low following the central bank’s decision to slow the pace of some of its monetary tightening.
The one-week deposit rate was raised by 30 basis points to 6.75%, highest effective rate in the EU and matching the median estimate in a Bloomberg survey. Deputy Governor Barnabas Virag said the central bank would keep that pace of increase each month, taking the facility to 7.05% by the end of June.
The forint went into a tailspin, dropping close to a record low after policy makers halved the pace of hikes to its base rate. The decision was flagged by Virag when he said interest rates shouldn’t follow inflation into double-digit territory.
“In such an uncertain environment we need to continue with more gradual but still decisive rate hikes,” Virag told Inforadio in an interview. He reiterated that the central bank was preparing for a longer rate-hike cycle that would extend into the second half of the year.
Hungarian assets were also hurt by the government’s announcement last week to resort to windfall taxes to help plug budget holes, which spooked investors who sold the currency, stocks and bonds.
The forint has dropped more than 8% against the euro since Russia’s invasion of Ukraine in February, the most in emerging markets after the Turkish lira. It pared some of its losses on Wednesday after the Finance Ministry said talks to tap billions of euros in EU pandemic funds were in their “last phase.”
The European Commission continues to assess Hungary’s pandemic fund plan and is working to conclude the review, a European Commission spokesperson told Bloomberg.