National Bank springs sharp base rate surprise

Analysts describe the biggest rate increase by the National Bank for 14 years as shocking but laudable – and predict further increases until September.

As the Forint/Euro rate overstepped the 400 benchmark, the National Bank revised its inflation forecast upwards and raised its base interest rate from 5,9 to 7.75 percent.

On Napi, Viktor Zsiday predicts a base rate between 9 and 10 percent by September and deems the base rate hikes inevitable. He doubts, however, if they will be sufficient to solve Hungary’s complicated problems. Higher interest rates, he explains, will divert money from investment and thus will tend to halt growth. The solution would be for Hungary to reach an agreement with the European Union to unblock the funds suspended over rule of law concerns. He believes that if Hungary offered to join the European Prosecution Service, allowing it to investigate all future deals, that might be accepted in Brussels as a satisfactory compromise.

On Mandiner, Géza Sebestyén, senior economist at Matthias Corvinus Collegium also takes it for granted that higher interest rates will cool down economic growth. Meanwhile, Hungary at least has that tool at its disposal, he adds, unlike the Baltic countries which have joined the Eurozone, where the European Central Bank still keeps its interest rate close to zero.

Tags: european pro, interest rate, National Bank