Hungary’s June headline inflation accelerates to an annual 5.3 per cent - GulfToday

Hungary’s June headline inflation accelerates to an annual 5.3 per cent


Busy buyers on a shopping street in downtown Budapest, Hungary. File/Reuters

The National Bank of Hungary is likely to extend its cycle of rate hikes with a 20-basis-point increase in its base rate to 1.1% next Tuesday after higher-than-expected inflation data, a Reuters poll of analysts showed.

The NBH raised its base rate by 30 basis points to 0.9 per cent last month, becoming the first in the European Union to launch a cycle of rate rises to combat growing price pressures amid a faster than expected recovery from the COVID-19 pandemic.

The consensus forecast of 18 economists in a July 19-21 Reuters poll sees the NBH following up last month’s rate rise with a 20-basis-point increase, with tightening bets ranging from 15 basis points to 30 basis points.

Headline inflation accelerated to an annual 5.3 per cent in June from 5.1 per cent in May, its highest in nearly a decade, while the NBH’s preferred price gauge, tax-adjusted core inflation, also increased to 3.8 per cent year-on-year.

“The large upside inflation surprise in June is also creating risks for the NBH to decide to front-load the hiking cycle, but we think that the central bank would prefer to maintain a steady pace of tightening on the back of the upcoming significant inflation deceleration in July,” economists at Morgan Stanley said in a note.

Deputy Governor Barnabas Virag said early this month that next week’s meeting would be crucial with respect to the size of future rate rises as the bank looks to rein in price surges.

“Given the (NBH’s) communication, as well as higher inflation data than we had expected, we are revising our forecast for more near-term tightening,” economists at Goldman Sachs said in a note.

“Previously, we expected an additional 15bp of rate hikes this quarter, but now project the (NBH) to hike by 30bp in the next July 27 MPC meeting.”

The NBH projects average inflation at 4.1 per cent this year, above the top end of its 2 per cent-4 per cent target range, returning to its 3 per cent policy anchor sometime around mid-2022 thanks to policy tightening.

However, the poll sees average inflation even higher, at 4.4 per cent this year, easing to 3.4 per cent next year and 3.2 per cent in 2023.

Economists have also raised their bets for future rate tightening, projecting the base rate to reach 1.5 per cent by the end of this year and 2 per cent by the end of 2023, up from 1.05 per cent and 1.5 per cent, respectively in last month’s survey.

Meanwhile as part of its endeavours to strengthen and activate means of economic and investment cooperation with various countries of the world, the UAE, represented by the Ministry of Finance (MoF), signed an agreement to promote and protect mutual investments with Hungary on July 15.

The agreement, which was signed on Thursday morning at the ministry’s headquarters in Abu Dhabi, aims to enhance economic cooperation, provide an optimal investment environment, and secure a comprehensive balance between rights and obligations between investors and the host country, thus stimulating business initiatives for sustainable economic development.

Younis Haji Al Khoori, Undersecretary of Ministry of Finance, singed the agreement on behalf of the UAE, while Osama Naffa, Hungarian Ambassador to the UAE signed it on behalf of the Hungarian side, in the presence of senior officials from MoF.

The agreement protects both nations’ investments from all non-commercial risks including nationalisation, confiscation, judicial seizures, and freezing; and it creates a conducive environment for mutual investments and licensing. It also covers transfer of profits and revenues in convertible currency and provides investors a just and immediate compensation for their investments in case of their appropriation for the public interest – in accordance with the approved law and provided that the compensation value is in accordance with the market value of the investment prior to its seizure.

Younis Haji Al Khoori reaffirmed the UAE’s keenness to protect the UAE investments abroad and provide the optimal economic environment to attract foreign investments in accordance with a legal and legislative system that is in line with international best practices.

He said: “Agreements on protection and promotion of investments provide the legal framework and grant national and most-favoured-nation (MFN) treatment in the management, maintenance and expansion of investments, with emphasis on non-interference in all investment-related subjects.”

He added: “Hungary is one of the UAE’s leading economic partners in the Central and Eastern European Countries (CEECs).

This agreement underscores both nations’ efforts to bolster bilateral relations, enhance cooperation in the economic and financial sectors, and encourage the growth of mutual investments.”

The UAE, represented by the Ministry of Finance, has signed 101 bilateral agreements to protect and encourage investment with different countries around the world. These agreements support the country’s efforts to establish international partnerships to achieve common goals in line with the sustainable development goals, which represent a roadmap for establishing cooperation at an international level.

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