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Hungary’s central bank raised its key interest rate for the first time in nearly a decade as inflation continue to remain above the target.

The Monetary Council of the Magyar Nemzeti Bank on Tuesday decided to lift the benchmark base rate by 30 basis points to 0.90 percent from 0.60 percent.

Economists had expected a hike to 0.85 percent. The previous change in the rate was a 15-basis point cut in July 2020.

The latest hike in the base rate was the first since December 2011, when it was raised by 50 basis points to 7.00 percent.
The overnight central bank deposit rate was retained at -0.05 percent and the one-week collateralized loan rate was maintained at 1.85 percent.

In May, consumer price inflation held steady at 5.1 percent, well above the central bank’s tolerance band of 2 percent to 4 percent.

The extent of inflationary pressures building from goods shortages and the re-opening of services sectors is clearly making the MNB feel uncomfortable and it now feels the need to start tightening policy to address these risks and safeguard inflation expectations, Liam Peach, an economist at Capital Economics, said.

With the recovery set to strengthen and inflation likely to increase further in the coming quarters, additional interest rate hikes are likely in the second half of this year, the economist added.


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