The Monetary Council of the Hungarian central bank (NBH) raised the base rate by 50 basis points to 7,25% from 6,75% in line with the consensus forecast of most analysts interviewed by the local financial media. Most market players have already priced in a 50 bp rate hike after figures from the central bank’s quarterly inflation report showed higher inflation forecast than that of the government. The weakening of the forint also augured a rate rise.
The Monetary Council said early in July that it planned to gradually increase rates to bring inflation in line with its mid-term target of 3% by 2008, as well as to prevent a temporary pickup of inflation resulting from tax hikes in the austerity package raising inflationary expectations.
The NBH last raised the base rate by 50bp to 6,75% on July 24, a month after a 25bp hike effective June 20. Before the June rise, the base rate was unchanged since September 20, 2005, when it was reduced 25bp to 6,00%.
“The rate rise should cause the forint to firm, but it probably will not affect bond yields, as dealers had already expected the rise and priced the increase in,” says a spokesman for RZB.