Hungary cbanker flags possibility of June base rate hike

Hungary's monetary policy will enter a new phase from June as the economy fully re-opens and the central bank will adjust short-term rates proactively to tackle rising inflation risks, deputy governor Barnabas Virag said on Monday.

By Krisztina Than and Gergely Szakacs

BUDAPEST, May 17 (Reuters) - Hungary's monetary policy will enter a new phase from June as the economy fully re-opens and the central bank will adjust short-term rates proactively to tackle rising inflation risks, deputy governor Barnabas Virag said on Monday.

He said rate rises could precede any decision about asset purchases, and the June inflation report would be critical in assessing risks.

"This will be a data-driven process, in several steps...and the possibility of a hike in the base rate is worth assessing already in June," Virag told reporters, sending the Hungarian forint EURHUF=D3 to a five-month-high versus the euro.

He said the economy will rebound dynamically from the coronavirus pandemic-induced shock, with GDP growth seen now closer to 6% this year, due to a strong rise in demand.

Virag said upside inflation risks have clearly risen since March, and the bank would do everything to prevent second-round effects.

"We must not underestimate the risks of a sustained rise in inflation, and we will react to inflation risks pro-actively," Virag said.

"We will deploy a mixed strategy: we will shape short-term rates proactively...working on the phasing out of crisis management tools in parallel with that."

He said the bank would react to sustained inflation risks by changing its key base rate, while the one-week deposit rate will be used to tackle short-term shocks in risk premia.

The NBH left its base rate HUINT=ECI at 0.6% and the overnight deposit rate HUODPO=ECI at -0.05% at its last rate meeting in April. The next meeting is due next Tuesday.

(Reporting by Krisztina Than and Gergely Szakacs; Editing by Simon Cameron-Moore)

((krisztina.than@thomsonreuters.com;))

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