Hungary to raise interest rates

A huge 3 percentage points have been added to the benchmark interest rate by Hungary’s central bank which represents the largest increase in over 5 years.

It is seen as an emergency measure as the country’s currency, the forint, has lost ground against the euro. The measure is also, in part, introduced in order to reduce the short-term financing problems that came as a result.

Many economists are arguing that Hungary will not become the new Iceland, the reason being that there are a few differences due to the fact that Hungary is a European Union member and has a large contingent of western banks, coupled with the fact that the European Central Bank has offered 5 billion euros in terms of financial aid and support.

Given the substantial growth that Hungary has experienced, it has the second highest interest rates after Romania and so any further tightening would harm growth rates and future forecasts.

Over the last month the forint has fallen by 14 percent but it did increase to 275.35 per euro compared to its morning fall of 283.35 yesterday.

Locals have been told not to worry about the currency’s low level as there is no immediate to risk to either the banks or their money.

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