Hungary holds interest rates at 0.9%

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Hungary has held its benchmark interest rate at 0.9 per cent, in line with expectations.

The central bank also made no changes to its short-term three-month and overnight deposit rates, which it held at 0.9 per cent and -0.05 per cent respectively.

Analysts at ING said that the central bank seemed determined to keep monetary policy loose despite rising inflation, adding that interest-rate policy was “a secondary driver of the Hungarian forint at this point”. They wrote in a note:

The NBH seems to be determined to keep monetary policy loose and should look through rising domestic inflation (Jan CPI at 2.3%YoY). The impact on the forint should be very limited, with recent forint rally being driven by external factors: (a) the sharp fall in 2-y Schatz yield that widened the HGB-Schatz spread into Hungary’s favour; (b) benign global risk environment.

As both factors seem to be still in place, a limited forint rally is likely to continue for a while yet.

However, Hungary and its eastern European peers Romania and Poland are expected to increase interest rates in the next 12 months, forwards markets indicate, amid an environment of rising inflation.

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