Hungarian central bank raised key interest rate by 50 bps

Figures published last week, in particular the poor GDP structure and higher than expected current account and budget deficits, had a negative impact on bonds and on the exchange rate of the forint. These indicators are strong arguments in favour of tightening monetary policy. The weakening forint would also require the decisive step of a hike in rates.

It is therefore little surprising that the Monetary Council of the NBH hiked its two week deposit rate by 50 bps to 9.50% this Monday afternoon. The reasons stated were the weakening forint, the risk of inflation exceeding target as well as the expected acceleration of economic growth in 2002 and 2003.

In our opinion, further hike cannot be excluded, if the forint fails to recover in the near future.

Jakub Dvorak, Investment Research, CSOB