By Gergely Szakacs and Krisztina Than
BUDAPEST – The National Bank of Hungary (NBH) raised its base rate by a whopping 185 basis points to 7.75% on Tuesday, ramping up the pace of hikes after the forint plunged to a record low this week, while inflation is surging.
At 1208 GMT, the forint, central Europe’s worst-performing currency, which sank to a new low at 404.5 versus the euro on Monday, traded at 397.75 per euro stronger than 400 just before the announcement.
The median forecast in a Reuters poll last week projected a 50 bps increase to 6.4%, with three economists forecasting a 100 bps move.
It was the NBH’s single-largest base rate increase since a 300 bps emergency move at the start of the global financial crisis in October 2008.
The forint is still down some 7% against the euro this year alone despite the NBH now having raised its base rate by 715 bps over the past year, pressured by a high budget deficit, windfall taxes on companies and a funding row with the European Union.
The NBH is set to upwardly revise its 2022 inflation projection again on Tuesday after Deputy Governor Barnabas Virag had warned that the bank’s March forecast for up to 9.8% inflation this year no longer looked sustainable.
Economists polled by Reuters forecast headline inflation averaging 10.25% this year, its fastest pace in 24 years. Price growth is seen easing to 6.5% next year, still far above the NBH’s 2% to 4% target range.