Hungary Raises Interest Rates for Sixth Time in as Many Weeks

(Bloomberg) -- The Hungarian central bank raised effective interest rates for the sixth time in as many weeks to stem accelerating inflation.

A day after Prime Minister Viktor Orban announced a freeze on mortgage rates -- which will act as a break on monetary tightening from the central bank -- policy makers raised the one-week deposit rate by 20 basis points to 3.80%.

The decision increased the gap between the effective base rate and the borrowing costs for required reserves by 140 basis points. It also extended the string of increases in the rate tied to cash parked at the central bank by commercial lenders, which has been lifted by 170 basis points since Nov. 18.

The central bank raised the reserve rate last week, scrapped its government- and corporate-bond purchasing program and started providing swap operations to support the forint, which is near an all-time low against the euro.

Policy makers have said the moves will help inflation, which hit an almost 14-year high of 7.4% in November, gradually return to their 3% target.

But the weak forint continues to fan price growth, while the government has also embarked on a spending spree to shore up support before elections next spring. Orban’s announcement on mortgage rates on Wednesday may undermine those efforts as they lock in lower rates for homeowners at least until June.

©2021 Bloomberg L.P.