Hungary central bank leaves rates unchanged, as expected

Credit: REUTERS/Bernadett Szabo

The National Bank of Hungary (NBH) left interest rates on hold on Tuesday, as widely expected, with some analysts saying the bank may need to send a hawkish signal to shore up the falling forint after a recent run up in inflation.

By Gergely Szakacs

BUDAPEST, Sept 22 (Reuters) - The National Bank of Hungary (NBH) left interest rates on hold on Tuesday, as widely expected, with some analysts saying the bank may need to send a hawkish signal to shore up the falling forint after a recent run up in inflation.

The central bank kept its base rate HUINT=ECI unchanged at 0.6%, in line with economists' forecasts in a Reuters poll , after 30 basis points worth of cuts in June and July to bolster the economy hit by the coronavirus pandemic.

The bank, led by Governor Gyorgy Matolcsy, an ally of Prime Minister Viktor Orban, is in a bind, stuck between an economy that is seen shrinking by 5-7% this year, and high inflation, which has also put the forint under pressure.

At 1201 GMT, it traded at 362 against the euro, unchanged from levels before the announcement.

Headline inflation hit 3.9% year-on-year in August, near the top of the bank's 2% to 4% target range, while tax-adjusted core inflation, its preferred measure, rose to 4.2%.

"We expect the rate-setting meeting to be strong in words rather than full of action," economist Peter Virovacz at ING said ahead of the decision. "One or two strong references to the inflation situation, complemented by a message that the NBH doesn't have the appetite to ease further, could be enough," he said.

"With that, the central bank can buy precious time until inflation drops back closer to the middle of its 2–4% target range."

The bank also pumped 575 million euros ($675 million) into the domestic interbank market at its first new foreign currency swap tender on Friday, in a move that analysts said was aimed at supporting the forint EURHUF=D3.

Central Europe's worst-performing currency sank to five-month-lows against the euro on Monday as a second wave of coronavirus infections compounded investors' worries.

($1 = 0.8515 euros)

(Reporting by Gergely Szakacs Editing by Tomasz Janowski)

((gergely.szakacs@reuters.com ; https://twitter.com/szakacsg ; +36 1 882 3606 ; https://www.reuters.com/journalists/gergely-szakacs))

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