Central European policymakers are seeking to end a cycle of interest rate hikes running since last year even as inflationary pressures remain and the world's major central banks keep pursuing higher rates.
Deputy Governor Barnabas Virag said last week that the NBH, which has raised its base rate by more than 1,200 bps since June 2021 to the highest level in central Europe, could consider ending its rate rise cycle after Tuesday's meeting.
The forint firmed to 405.50 versus the euro from 407.85, immediately after the rate hike announcement.
The 125 bps increase brought Hungary's benchmark to its highest since the turn of the century, with inflation on track to accelerate further from last month's 15.6% pace after the government curbed a years-long cap on household utility bills.
"(NBH) has hiked rates the most in CEE since the tightening cycle began - but its real interest rate level is still the most negative," economists at Commerzbank said in a note before the latest rise.
"The reason why such monetary policy could still be considered prudent for the time being is that even the Fed or ECB are conducting their own tightening using the assumption that inflation will soon peak and average much lower next year."
However, it said barring a decline in inflation rates soon, central European currencies could come under "significant further pressure", with the forint already having lost nearly a 10th of its value versus the euro this year alone.
Earlier this month, Prime Minister Viktor Orban's government extended price caps on fuels and basic foodstuffs by three months until the end of the year in a bid to shield households from soaring costs.
Even with the price caps in place, however, analysts polled by Reuters see headline inflation averaging 13.6% this year, rising to 13.95% in 2023 before a retreat to 4.3% by 2024.
(Reporting by Gergely Szakacs and Krisztina Than; Editing by Alison Williams)
By Gergely Szakacs and Krisztina Than
