Markets will be wary of Hungary despite rate rise

Significance

Although the MNB has struck a more hawkish tone and has raised rates more sharply than expected -- the latest increase is the largest since 2008 -- it has a track record of slowing the pace of tightening whenever market sentiment improves.

Impacts

• Sharp rises in bond yields due to the shift towards tighter monetary policy are bringing down global stocks of negative-yielding debt.
• Foreign ownership of local-currency government bonds in Central Europe is plummeting.
• Regional central banks may begin lowering interest rates from mid-2023 in response to a sharp slowdown, if not an outright recession.