Forint leads currency gains after latest central bank rate hike

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BUDAPEST, December 30 (Reuters) – The Hungarian forint strengthened 0.5% against the euro early Thursday, marking gains among central European currencies, after the National Bank of Hungary (NBH) raised its one-week deposit rate by an additional 20 basis points to 4%.

At 08:45 GMT, the forint was trading at 368.6 per euro, reducing some of its losses for the year to 1.6%, the second worst in the region behind the Romanian leu. Most of the other central European currencies were slightly positive.

Hungary’s one-week deposit rate is now 220 basis points above its level in mid-November, when the BNH launched its weekly hikes to support the forint, which hit a record low at 372 against the euro last month.

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Traders said weak market liquidity at the end of the year amplified movements in the forint, however, adding that the bank’s successive hikes and expectations of a rate tightening next year are likely starting to matter. an impact.

NBH Governor Gyorgy Matolcsy said on Monday that the base rate, currently at 2.4% (HUINT = ECI), would reach the level of the one-week deposit rate in the first half of 2022.

He also said a government decision to freeze retail mortgage interest rates for six months from January confirmed the bank’s position that it must act “in the most decisive manner” to contain inflation, which hit a 14-year high last month. Read more

“Since borrowers are now immune to rate hikes, the BNH may also raise the base rate more aggressively,” said a Budapest-based currency trader. “I think the BNH has probably realized that foreign investors cannot stand this complex system of interest rates.”

Another trader also said Thursday’s rate hike supported the forint, although he added that major gains were unlikely at this time.

The Czech koruna, the region’s best performer this year with a 5% gain for the year due to aggressive rate tightening, strengthened 0.2% at the start of the session.

Czech ministers on Wednesday said the new center-right government would freeze civil servants’ salaries and cut previously announced salary increases for others, as it seeks to narrow the budget gap amid inflation. Read more

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Reporting by Gergely Szakacs; Editing by Shounak Dasgupta

Our Standards: Thomson Reuters Trust Principles.

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