'Emerging Markets Facing "Inflation Risk"... Series of Interest Rate Hikes Expected'

[Asia Economy Reporter Park Byung-hee] It is expected that emerging countries exposed to inflation risks will continue to raise their benchmark interest rates. Hungary is anticipated to be the first European Union (EU) member country to raise its benchmark interest rate, and further increases in Brazil, which has been raising its benchmark interest rate since March, also seem inevitable.

According to major foreign media on the 9th (local time), Virag Wernerbashi, Deputy Governor of the Hungarian Central Bank, said that the risk of rising prices is increasing and that proactive measures are necessary. Deputy Governor Wernerbashi stated that at the monetary policy meeting on the 22nd, "effective measures will be taken" regarding the benchmark interest rate.

The Hungarian Central Bank has set an inflation rate target of 3%, with an allowable range of plus or minus 1 percentage point. Hungary's recent inflation rate exceeds 5%. Hungary is among the European countries with a high vaccination rate, and due to the resulting economic recovery and wage pressure caused by labor shortages, inflationary pressures have recently increased.

If Hungary raises its interest rate, it will become the first EU member country to start a tightening policy since the COVID-19 pandemic. Among Eastern European countries, the Czech Republic is also expected to raise its benchmark interest rate at the monetary policy meeting on the 23rd.

As Brazil's inflation continues, further increases in the benchmark interest rate appear inevitable. On this day, the Brazilian Institute of Geography and Statistics (IBGE) announced that the inflation rate in May recorded 0.83% compared to the previous month, marking the highest level in 25 years since May 1996 (1.22%). Accordingly, further increases in Brazil's benchmark interest rate are expected.

The Central Bank of Brazil raised the benchmark interest rate from 2% to 2.75%, an increase of 0.75 percentage points, at the monetary policy meeting in March. That rate hike was the first in six years. The central bank also implemented an additional rate hike last month at the monetary policy meeting, raising it to 3.5%.