Hungary to Hike Rate as Forint Near Record Low: Decision Guide
The European Union’s highest borrowing costs will continue to climb in Hungary despite a slowdown in economic growth as the central bank tries to pull the forint back from near a record low.
(Bloomberg) — The European Union’s highest borrowing costs will continue to climb in Hungary despite a slowdown in economic growth as the central bank tries to pull the forint back from near a record low.
Policy makers will raise the benchmark interest rate by a full percentage point to 11.75%, according to 11 out of 14 analysts in a Bloomberg survey. The decision will be announced at 2 p.m.
Deputy Governor Barnabas Virag may hold a press conference at 3 p.m. in Budapest, where he may talk about the monetary-policy outlook. The central bank will simultaneously publish its post-decision statement.
After sharp tightening to confront runaway inflation across the EU’s eastern wing, Hungary’s regional peers are signaling they may slow the pace of rate hikes or stop them completely as an energy crisis spurred by the war in Ukraine is expected to stifle growth. Hungary, on the other hand “has no choice” but to continue raising rates due to a surge in inflation and the forint’s weakness, CIB Bank Hungary analyst Mariann Trippon wrote.
The forint is 1.5% away from its all time-low against the euro and has weakened 10% this year, more than all 23 emerging-market currencies tracked by Bloomberg other than the Argentinian peso and the Turkish lira.
Hungary has one of the EU’s highest real rates, but the country’s reliance on energy imports, a spurt in government spending before this year’s elections and a dispute with the European Commission that is threatening billions of euros in funding have contributed to the forint’s weakness.
Hungary’s central bank “will maintain a squarely hawkish stance, and any disappointment in the current market environment could be met by an intensification in depreciation pressures,” Goldman Sachs economist Kevin Daly wrote.