Hungary's key interest rate will be raised to a new European Union high as a standoff with the bloc over rule of law complicates the central bank's efforts to end its monetary tightening cycle.
According to 8 out of 12 analysts, the benchmark interest rate will be raised by a full percentage point to 12.75%. The decision will be made at 2 p.m., after which central bank Deputy Governor Barnabas Virag is expected to speak at 3 p.m.
Hungary is trying to unfreeze recovery funds that the EU executive commission is refusing to release due to corruption concerns as the country faces a spike in energy prices and the highest inflation since 1998. The issues have hammered the forint and undermined the central bank's plan to slow or stop rate hikes that have eclipsed tightening everywhere else in the EU.
Virag said that they would assess each month from September onwards whether rate hikes should be stopped. He said that the end of tightening may happen in one step or gradually, and that the pace of tightening for Tuesday s meeting may repeat the full-point hike made in August or slow to 50 or 75 basis points.
Central banks elsewhere in the EU s eastern wing have signaled they are ready to end monetary tightening as they balance the need to rein in inflation with that of preventing economic growth.
Hungary's forint is close to an all-time low against the euro and has fallen 9.7% this year, it is the worst performing among 23 emerging-market currencies tracked by Bloomberg aside from the Argentinian peso and the Turkish lira.
Stopping or reversing the tightening cycle has made it harder to stop or reverse it. The country's heavy reliance on energy imports, a spurt in government spending and the dispute with the EU over 7.5 billion euros $7.2 billion in recovery funds are all reasons why investors are demanding higher rate-premium on Hungarian assets.
Prime Minister Viktor Orban announced on Monday that Hungary is in talks with international partners to make sure it has enough funding for energy investments during the country's gas crisis. After his speech, the forint plunged 1% against the euro.
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