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)