The Monetary Board of the National Bank of Hungary (BNP) on Tuesday increased the base rate by another 100 basis points, to 11.75%. Both sides of the interest rate corridor were raised accordingly by 100 basis points, according to most online publications in the neighboring country.
That lifted the key interest rate to an 18-year high, the last time it was that high in April 2004.
The monetary board’s decision is in line with expectations, and growth may continue in the coming months. Inflation can reach 20% and the base interest rate around 17-18%.
Despite all the interventions of the central bank, in recent weeks, the exchange rate of the forint (the local currency) has taken a difficult trajectory in terms of domestic and international economic impact: from levels below 400 forints against the euro, the Hungarian currency has depreciated to 414. Compared to the US dollar and the Swiss franc, the Hungarian currency fell to new lows: for the former, 417,359 HUF/USD and 432 HUF/CHF, a new negative record.
The negative trajectory of the Hungarian currency was influenced by the explosion of energy prices, but also by the domestic and international economic impact of the reduction by S$P of Hungary’s credit rating from stable to negative.
The continuous praises of PM Viktor Orban according to which Hungary will be out of the expected recession, as a result of its friendly relations with the Russian Federation, contradict the realities of the economy and social life.
Hungary’s move contrasts with a trend of slower rate growth in other Central and Eastern European countries. Poland has said it will assess rates pragmatically, while Romania has slowed rate hikes. In August, Czech authorities left rates unchanged for the first time in more than a year, saying they may resume hikes later.