By Gergely Szakacs
BUDAPEST – The National Bank of Hungary (NBH) is ready to intervene “at any moment” with all tools at its disposal to ensure the stability of local financial markets, it said in a reply to Reuters questions on Tuesday, reining in the forint from record lows.
The NBH raised its base rate by 50 basis points to 3.4% last week, as expected, after consumer prices grew at their fastest rate in almost 15 years in January and mounting Ukraine-Russia tensions fuelled market uncertainty.
The NBH said it was closely monitoring the situation, adding that current market moves were not justified by economic fundamentals after the forint fell as much as 2% on the day to record lows versus the euro.
“It is the NBH’s clear intention to prevent the heightened risks stemming from geopolitical circumstances from threatening Hungary’s price and financial stability,” it said.
“Financial market moves are not justified by fundamentals, however, they add to upside risks for inflation.”
Deputy Governor Barnabas Virag told private broadcaster Info Radio in an interview that the NBH must continue its monetary tightening cycle in a predictable way, but also stand ready to act in a flexible manner, if needed.
“The situation will be more difficult throughout the year because of the war,” Virag said. “We must prepare for an increase in inflation risks and a deterioration of the economic growth outlook.”
Virag said given the high degree of uncertainty over the outcome of the military conflict, it was not possible to give predictable economic forecasts, adding that the road back to the bank’s 3% inflation target will be a long one.
Earlier on Tuesday, economists at Raiffeisen Bank sharply raised their inflation forecasts for Hungary to 9% this year and 7% for 2023, with the average rate for two years projected at the highest for the entire Central European region.
“The National Bank of Hungary is closely monitoring the situation and stands ready to intervene at any moment,” it said. “If necessary, the NBH will use all tools at its disposal to ensure the stability of local financial markets.”
The war over the eastern border in neighbouring Ukraine, home to a large ethnic Hungarian community, has hammered Hungarian financial markets.
The forint has fallen some 4% versus the euro since Russia invaded Ukraine last week, sinking to record lows at 379 per euro on Tuesday. The currency pared some of its losses after the central bank remarks, but was still down more than 1% on the day, extending its losses for the year.
Shares in central Europe’s largest independent lender, OTP Bank, plunged 21.5% on Tuesday, hitting their lowest level since November 2020. The bank’s shares have lost about a third of their value since Russia invaded Ukraine last week.
The NBH’s next regular policy meeting is due on March 22. It will hold a non-rate setting meeting next Tuesday, while the weekly tender of its one-week deposit facility, which it uses to tackle short-term market volatility, is due on Thursday.
(Reporting by Gergely Szakacs and Anita Komuves in Budapest; Editing by Alex Richardson and Matthew Lewis)