Hungary: Central bank hiked the base rate by 25bp to 8.25%

Mon, Apr 28 2008, 16:07 GMT
by Orsolya Nyeste

Erste Bank der oesterreichischen Sparkassen AG


Today, the central bank hiked the base rate by 25bp, to 8.25%. We had expected no change, but the final outcome was in line with the market consensus.

The council’s statement mentions the reasons for hiking the base rate today as follows:

(1) The council sees continued risks to the achievability of the inflation target next year. (2) According to the latest wage figures, wage growth will slow at a slower than expected pace, which may increase cost inflation pressure in the economy. At the same time, both the council’s statement and the governor at the press conference mentioned that wage figures were not “clear” and the assessment of them was difficult, due to some one-off impacts (3) the disinflation effect of the current negative output gap is less unanimous and spectacular than earlier expected. Finally the statement concludes that if meeting inflation targets makes it necessary, the council is ready to take further steps to reach price stability. Based on the maintained hawkish tone, further rate hike seems to come next month.

The forint reacted with some strengthening after the announcement of the rate decision.

Published on  Mon, Apr 28 2008, 16:08 GMT

Erste Bank http://global.treasury.erstebank.com | Rainer.Singer@erstebank.at

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