MNI NBH Preview - Nov'25: Hawkish Risks Bolster Case for Hold

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Executive summary:

• The National Bank of Hungary is expected to keep the base rate on hold at 6.50% for the 14th consecutive month, sticking to its ‘cautious and patient’ approach to monetary policy as headline inflation continues to run above target.
• Pro-inflationary government measures and the possibility of sovereign ratings downgrades pose hawkish risks.
• All 20 analysts surveyed by Bloomberg expect the base rate to be left unchanged.

Strong and favourable base effects are expected to drive headline CPI below the 4% target in the coming months, however, inflation is expected to surge thereafter, and the rise will potentially be exacerbated by the expiry the profit margin caps next year. The central bank will have to focus on the underlying picture and is therefore generally expected to keep rates unchanged until at least after the April elections when it will have more clarity on the government’s fiscal plans. 

The most notable development since the last meeting came with the upward revisions to the government’s budget deficit targets to accommodate pre-election spending, which prompted a notable drop across Hungarian assets. The target for 2025 was raised to 5% of GDP from a previous 4.1%, while the target for 2026 was also raised to 5% compared to a forecast of 3.7% which had been used in next year's budget. The National Economy Ministry stated that FX bonds to be issued at the start of 2026 and higher banking taxes would fund the shortfall.