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Hungary's central bank left interest rates unchanged at 9.5 percent at its monthly meeting on Monday, in line with market expectations.
This is the third month running that rates have been left on hold.
Previously, the bank cut had rates by a combined 200 basis points between November and January, rolling back most of a 300 basis point emergency rate hike delivered in October before Hungary secured IMF-led aid worth $25.1 billion.
Markets did not react to the rate decision as 19 of 20 analysts surveyed by Reuters last week projected unchanged rates. Also, analysts said a weaker forint and a bigger than expected tax hike by the country's new government have erased hopes for any near term rate cuts.
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CNBC.com |
"A larger-than-expected VAT hike pushes the inflation trajectory substantially higher, (the) year-on-year inflation rate being close to 7 percent," Daniel Bebesy, an economist with Budapest Fund Management said.
"The impact of the weaker forint is not obvious yet, but it is certainly an upside risk for the inflation path," he added.
Hungary's government announced on Sunday it would hike the value added tax rate to 25 percent from 20 percent, which could push the inflation rate to a peak of 6.5-7 percent by December, before a slowdown next year.
The central bank earlier said that low inflation -- 2.9 percent in March -- could allow for rate cuts but concerns over financial stability and a weak currency prevented such a move.
Analysts said the tax hike redrew the inflation outlook while financial stability has not improved significantly so a rate cut in the near future is not realistic, despite a bigger than expected recession in Hungary and Europe.
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"It's unlikely that interest rates will change in the near future," Orsolya Nyeste, an economist at Erste Bank said. "If markets stabilise -- though the forint weakened in past days -- and the global market situation improves, the bank can probably avoid an interest rate increase."
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Data is a real-time snapshot *Data is delayed at least 15 minutes