Hungary Readies March Monetary Policy Review After Price Jump

(Bloomberg) --

Hungary sharpened its warning that it’s ready to use all tools possible to rein in the European Union’s highest inflation, saying it would decide how much action is needed next month.

The central bank, one of the world’s most dovish, is looking to soothe investor concern after price growth surged far above its target and the forint dove to a record low against the euro.

It has resisted raising official borrowing costs, a trend it continued at a meeting Tuesday. That followed moves by rate setters to push interbank funding costs, the main measure of central bank policy, higher as they wait for updated economic forecasts.

The bank will “determine the extent of the step necessary” when it receives new forecasts in March, the central bank said in a statement after the policy meeting. “If a sustained change in the outlook for inflation warrants it, the Monetary Council will be ready to use every instrument at its disposal.”

The bank kept the overnight deposit rate at minus 0.05% and the rate offered on reserves at 0.9% earlier in the day, as all analysts predicted in a Bloomberg survey.

“The statement was much more hawkish than the previous one”, said Mariann Trippon, an analyst at Intesa Sanpaolo’s Hungarian unit. But the “key goal of the central bank has not changed: They want to keep rates as low as possible and as long as possible without triggering a sharp depreciation in the forint.”

Hungary is tackling its inflation dilemma as the world’s major central banks loosen policy to maintain economic expansion, which is facing further dangers from the spread of the coronavirus.

Eastern Europe is tilting the opposite way as prices surge. The Czech Republic delivered the world’s first rate hike of 2020 and Poland and Romania are under increasing pressure to follow.

But Hungary, where the central bank has pledged to support Prime Minister Viktor Orban’s efforts to lift economic growth, has so far been reluctant, maintaining one of the deepest negative real interest rates in the world.

The bank has taken some steps to drain liquidity by cutting back its weekly offering of foreign-currency swaps. That’s pushed the 3-month Bubor rate almost half a point higher since mid-January to 0.6%.

The question is whether the action will amount to more than past fleeting bouts of support for the forint.

The bank sees inflation easing as base effects fade, predicting consumer prices will rise 3.7% in March -- back within its tolerance band.

--With assistance from Harumi Ichikura.

To contact the reporter on this story: Marton Eder in Budapest at meder4@bloomberg.net

To contact the editors responsible for this story: Alex Nicholson at anicholson6@bloomberg.net, Michael Winfrey, Andras Gergely

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