Hungary's central bank raised its key interest rate by larger-than-expected 185 basis points on Tuesday amid the strong rise in inflation and the weakness in the forint exchange rate.
The Monetary Council, led by Governor Gyorgy Matolcsy, lifted the base rate to 7.75 percent from 5.90 percent, the Magyar Nemzeti Bank said Tuesday. The bank was expected to hike the benchmark rate by 50 basis points.
The central bank has raised the key interest rate in every policy session since June last year.
The overnight deposit and lending rates were raised by 135 basis points each to 7.25 percent and 10.25 percent, respectively. The new rates take effect on June 29.
Consumer price inflation accelerated to 10.7 percent in May, which was the highest in more than two decades.
Today's decision to opt for a larger hike suggests that the central bank felt that a more aggressive increase in rates was required to shift expectations, defend the currency, and combat inflation, Joseph Marlow, an economist at Capital Economics, said.
Inflation is likely to remain above 10 percent until early next year as price pressures remain strong, and the MNB is expected to keep raising the base rate and the one-week deposit rate together, the economist noted.
But continued downward pressure on the forint could force the central bank to step in to defend the currency again in the coming weeks with further hikes to the one-week deposit rate, said Marlow.
