Hungary’s Rate Hikes ‘Far From the End,’ Central Banker Says

(Bloomberg) -- Hungary is “far from the end” of its pursuit of higher borrowing costs, central bank Deputy Governor Barnabas Virag said, after a surprise decision to slow one of Europe’s most aggressive interest-rate hike campaigns triggered a week-long drop in the forint. The currency strengthened.

Virag reiterated that the bank plans to continue raising the benchmark rate by 15 basis points a month, compared with the three 30 basis point moves from June to August.

But his comments suggested that the tightening may extend into next year and he said the National Bank of Hungary is seeking to cut forint liquidity via swaps “in a more dynamic way than before.”

“The NBH monetary-policy stance continues to tighten further,” Virag told reporters on the sidelines of a conference in Warsaw on Friday. “It’s a long road, and I think we’re far from the end.”

The forint strengthened 0.4% to 358.1 against the euro by 2:04 p.m. in Budapest. The currency had dropped six straight days and is now 1.55% weaker since the Sept. 21 rate decision, making it the worst performer in emerging markets after the Chilean peso and Brazilian real. Virag said the forint’s “recent volatility should not be overestimated.”

Hungary’s decision to slow rate-hikes while boosting its inflation forecast last month startled investors and contrasted with the Czech central bank, which on Thursday stepped up its tightening campaign by raising the benchmark rate by 75 basis points, the biggest increase in 24 years. Poland, meanwhile, has chosen to eschew tightening altogether.

Read more: Forint Weakens as Bets for Aggressive Monetary Tightening Fade

The central bank in Budapest is also tapering its bond-purchase program and has flagged a plan to phase out forint liquidity injections via the swap market, both of which would help tighten monetary conditions.

Virag suggested that these market operations would play a more prominent role in the future and said the central bank was working on “new solutions” to help the stability of foreign-currency swap market and “enhance the effectiveness of monetary transmission.” 

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