Hungary’s central bank is set to lift the base rate by 25 basis points to 6 per cent next Monday – the third such rise in as many months. Economics is the main driver, but, as so often in Hungary right now, politics is also involved. According to a Reuters poll more than two-thirds of analysts expect a hike. Most arguments for predicting an increase are fairly orthodox – surprisingly high inflation of 4.7 per cent in December, rising wage trends, and the recent Polish rate increase.

But Nigel Rendell, emerging market strategist with RBC Capital Markets, points to another likely cause – prime minister Viktor Orban’s plans to reshuffle the rate-setting monetary council. “Yes, they’ve got to put the lid on inflation, but the most pressing issue is the expected change to the Monetary Council,” he says.

Under draft proposals put forward by Orban’s centre-right government, all four new members (of the seven-man council) to be appointed from March would be chosen by parliamentary committee, and therefore, observers believe, pro-government. “That means they’re likely to be dovish, and unlikely to vote for further rate increases. So the current council has to strike while the possibility is there,” argues Mr Rendell. Read more