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Hungary will stick to slower rate rises after May CPI data -c.banker

·2-min read
The National Bank of Hungary building is seen in Budapest

BUDAPEST (Reuters) - Hungary's central bank will stick to a slower pace of rate rises adopted last month even after May inflation data came in higher than market expectations, rate-setter Bianka Parragh said on Wednesday.

The National Bank of Hungary (NBH) said last month it would continue tightening monetary policy "for the foreseeable future" after it raised its main interest rate by only 50 basis points, half the pace of rate rises in recent months.

Headline inflation rose to 10.7% year-on-year in May, exceeding analyst forecasts, while core inflation surged by nearly 2 percentage points from April, prompting some economists to raise their forecasts for 2022.

"The data was not a surprise for the central bank, we had expected a double-digit reading," Parragh told an online forum, adding that the NBH would continue rate rises in the second half of 2022 to curb price growth.

"With regard to the upcoming period, tightening will continue, however, we should not proceed in too large steps. Nonetheless, determined steps are needed in monetary policy."

She said underlying inflation trends would be critical in determining the extent of tightening after the bank's closely-watched gauge of lasting price trends jumped and inflation expectations were stuck well above the bank's target range.

Parragh said the bank would closely monitor monthly repricing activity across the economy, which has so far shown much more frequent repricing by businesses than the average seen over the past five years.

"If these repricing measures were to moderate, that would be a hopeful sign, that would definitely be a good and positive sign," she said.

Parragh added, however, that double-digit wage rises amid what she called an "extremely tight" labour market made it difficult for inflation to decline, adding that wheat, maize, sugar beet or coffee prices would also factor strongly in policy decisions.

"These are the three pillars that will be decisive with regard to inflation, determining the evolution and extent of rate rises," she said.

Economists polled by Reuters projected Hungary's base rate rising to 8% by the end of this year from 5.9% currently.

(Reporting by Gergely Szakacs; Editing by Toby Chopra and Alex Richardson)

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