Hungary’s central bank raises interest rates as inflation surges

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Hungary’s central bank raises interest rates as inflation surges

Injuries in Hungary soared at the fastest point in a generation as the country's central bank raised interest rates by the highest of any member of the European UnionEuropean Union.

Compared to a year ago, Hungary saw its consumer prices increase by 13.7%, surpassing previous economic forecasts, according to Bloomberg. The country's core inflation, which measures long-term inflation without volatile commodities, increased by 16.7%.

The main currency of Hungary, the Forint, fell more than 8% against the Euro, the third-worst performance in countries with emerging markets. In July, the central bank lowered the interest rates by 200 points, bringing the yearly total to more than 800 basic points.

Mariann Trippon, a Hungarian economist based in Budapest, told Bloomberg that the central bank has no choice but to continue its rate-hike cycle with decisive steps. Trippon predicts that the interest rate will go up to 13% by the end of 2022, along with other Hungarian economic strategists.

In the next months, the bank could raise rates by up to 100 basis points each month. Peter Virovacz, a senior economic analyst in Hungary, told Reuters that in order to reach positive real interest rates as soon as possible. We do not exclude that the central bank will stop with rates at around 14% or 15% for the year, but basic food prices for items such as bread and cheese rose by more than 50%. The brunt of Hungarian inflation is expected to shift to energy sources.

In order to reduce spending amid the potential spike in energy costs, Hungary's Prime Minister Viktor Orban wants to remove a price cap on motor fuel.