National Bank of Hungary deputy governor Virag talks to reporters in Budapest
National Bank of Hungary deputy governor, Barnabas Virag in Budapest, Hungary May 17, 2021.

The National Bank of Hungary is likely to raise its base rate by another 100 basis points to 12.75% next Tuesday, a Reuters poll showed, with further hikes seen by the end of the year despite the bank flagging a possible halt to its increases.

The median forecast of economists shows the NBH is set to maintain the 100 bps tightening pace delivered over the past months as Hungary grapples with a jump in inflation to two-decade highs amid surging food and energy costs.

Out of the 14 economists who gave forecasts, five, however, projected that the bank would slow the pace of rate hikes to 75 bps, taking the base rate to 12.5%, while one analyst pencilled in a larger 125 bps increase to 13%.

Deputy Governor Barnabas Virag told reporters on Thursday that the NBH, which has raised its base rate by more than 1,100 bps since June 2021 to the highest level in central Europe, could consider ending its rate rise cycle after Tuesday's meeting.

He said the bank could raise interest rates by 50, 75 or 100 basis points, after which "all options are on the table", including ending rate rises at once or phasing out the cycle with several smaller steps.

"We narrowly favour a 75 basis point hike at the National Bank of Hungary's September meeting, taking the base rate and the one-week depo rate to 12.50%, although 100bp remains clearly on the table," said economist Peter Virovacz at ING.

"The announcement of a prolongation of the price cap measures in basic food and fuel from the government will lower the near-term inflation peak, somewhat limiting concerns about consumer inflation expectations becoming more extreme."

Last week 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.

Economic growth, however, is seen slowing sharply, to just 1.3% next year from 5% expected in 2022, implying a stagflation scenario for Hungary as the energy crisis hits major European economies that absorb most of its exports.

A new economic trajectory unveiled by Finance Minister Mihaly Varga earlier on Friday showed Hungary's economy was set to contract for several quarters from the end of this year.

A view of the entrance to the National Bank of Hungary building in Budapest
A view of the entrance to the National Bank of Hungary building in Budapest,Hungary February 9, 2016.