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Hungary Ramps Up Rates, Raises 1-Week Depo Rate to 9.75%

BUDAPEST, July 7 (Reuters) - Hungary's central bank raised its one-week deposit rate by a whopping 200 bps to 9.75% on Thursday , acting on its pledge to support local financial markets and respond to rising inflation risks.

The forint plunged on Wednesday to record lows past 416 versus the euro and Hungarian government bond yields jumped as the country's worsened risk profile and worries over the future of European Union fund flows added to fears of a global recession.

The bank uses the one-week deposit rate to tackle short-term market volatility. In late June, at its monthly rate meeting the National Bank of Hungary (NBH) raised its base rate by 185 basis points to 7.75% HUINT=ECI, increasing the pace of hikes but failing to halt the forint's slide.

The forint firmed to 407.80 by 0708 GMT from 409 on Thursday immediately after the fresh rate hike, after gains posted late on Wednesday when the central bank said it would hike its deposit rate "decisively" as the market situation of recent days had increased inflation risks.

But the gains quickly faded and at 0725 GMT the currency was trading at around 412.

The forint has been on a weakening trajectory for weeks, complicating the central bank's efforts to curb double-digit inflation and exposing Hungarian assets to any negative shift in sentiment caused by the war in neighbouring Ukraine and surging energy costs.

Markets await an agreement that would allow the release of billions of euros of EU funds frozen due to concerns in Brussels over corruption, judicial independence and the rule of law in Hungary.

Hungary's vulnerabilities have increased this year. Its current account gap has widened mostly due to its high energy imports bill when the government has only just started to contain a huge budget deficit after a spending spree that helped Prime Minister Viktor Orban to a landslide victory in elections in April.

Reporting by Krisztina Than and Anita Komuves; Editing by Toby Chopra and Barbara Lewis

Source: Reuters


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