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CEE ECONOMY-Hungary to kick off region's rate hikes as inflation stays elevated

06/09/2021 | 05:16am EDT

June 9 (Reuters) - Hungary's central bank signalled on Wednesday it would be the first in the European Union to raise interest rates since the COVID-19 pandemic began as a strong economic rebound fuels inflation pressures.

The Czech central bank could soon follow with its own rate hike as central Europe looks to tame a spike in prices.

The region's inflation rates are the highest in the EU as its economies bounce back quickly from the pandemic and labour shortages reappear, putting upward pressure on wages.

Policymakers around the world sharply cut rates in 2020 to cushion economies from the blow of lockdowns imposed to contain the virus outbreak.

However, with its economy recovering on the back of one of Europe's fastest vaccine rollouts, headline Hungarian inflation has stayed elevated at an annual rate of 5.1% and a key central bank price gauge rose, data showed on Wednesday.

National Bank of Hungary (NBH) deputy governor Barnabas Virag said on Wednesday the central bank would act pro-actively to counter rising inflation risks and will launch a tightening cycle later this month.

He said an "effective" step in interest rates will come at a June 22 rate meeting. The Czech central bank meets a day later.

The NBH targets 3% headline inflation with a tolerance band of a percentage point on either side.

Gergely Suppan, an analyst with Takarekbank, said the bank would likely deliver on its promise of a rate hike despite a lower-than-expected May headline inflation figure, which analysts had forecast at 5.3%.

Risks from raw material prices were appearing, he said.

"The only thing the central bank can do against this is to raise interest rates, to try and strengthen the forint in order to cushion the effect of the global rise in prices," he said.

** For data releases: (Reporting by Marton Dunai, Anita Komuves and Krisztina Than in Budapest, writing by Jason Hovet; Editing by Toby Chopra)

ę Reuters 2021
Stocks mentioned in the article
ChangeLast1st jan.
EURO / HUNGARIAN FORINT (EUR/HUF) -0.01% 354.26 Delayed Quote.-1.91%
US DOLLAR / HUNGARIAN FORINT (USD/HUF) -0.01% 299.38 Delayed Quote.0.93%
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