Gulf Today

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

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 ater higher -than-expected inflation data


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 ater higherthan-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.

Meanwhilea­spartofits­endeavours­tostrength­en 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 atract 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 andgrantna­tionalandm­ost-favoured-nation(mfn) treatment in the management, maintenanc­e and expansion of investment­s, with emphasis on noninterfe­rence 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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Busy buyers on a shopping street in downtown Budapest, Hungary. File/reuters
↑ Busy buyers on a shopping street in downtown Budapest, Hungary. File/reuters

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