50bps Prime Interest Rate Rise By MNB Not Surprising

The decision of the Monetary Council of the Magyar Nemzeti Bank (MNB) on Tuesday was in line with expectations, and the publication of the latest inflation report may bring a change in central bank policy, analysts told the state news agency MTI.

The National Bank of Hungary (MNB) raised its benchmark base rate by 50bps to 3.40% from 2.90%, the overnight deposit rate to 3.40% and the overnight and one-week secured loan rates to 5.40%.

Zoltán Varga, a senior analyst at Equilor Investment Plc., said the rate hike will continue in a predictable manner. The one-week deposit rate is expected to rise by 30 basis points on Thursday, bringing the base rate and the flexible instrument closer together. Policymakers expect inflation to be even higher in February than so far, at 8.0-8.5%.

Inflationary pressures continued to build in January, with the consumer price index rising 7.9% on an annual basis, a near 15-year record, thanks to repricing at the beginning of the year, he recalled. He noted that the base effect could put some brake on the pace of inflation from April, but that the central bank would have to react decisively to developments.

In her comment to MTI, Orsolya Nyeste, macroeconomic analyst at Erste Bank, said that both the central bank's statement and the press conference held by the deputy governor on Tuesday focused on inflation developments. The much higher-than-usual pace of repricing at the beginning of the year is a common phenomenon, with the rise in global commodity and energy prices quickly feeding through to consumer prices.

She also noted that, as the tightening measures will continue with the increase in the one-week deposit rate, the one-week deposit rate is expected to rise by 30 basis points to 4.60% on Thursday. The analyst said that the inflation expectations announced by the vice-governor at the press conference, which are higher than the 7.9% announced in January, suggest that although the rate hike is "only" 50 basis points higher than in January, the decision to accelerate the tightening may be taken in March.