MNI NBH Review - May 2025: Familiar Cautious Language

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Executive summary:

• The National Bank of Hungary decided to keep its base rate unchanged at 6.50%, maintaining a hawkish tilt to its communication despite the slowdown in headline inflation in April.
• Guidance from Governor Mihaly Varga continues to indicate that rates will likely remain on hold for an “extended period”, as was expected prior to the meeting.
• Among sell-side, views are mixed over whether the NBH will have room to restart rate cuts later in the year.

This month’s policy statement retained a cautious tone, reiterating that a “careful and patient” approach to monetary policy remains necessary, and was for the most part unchanged from April. Inflation is still expected to remain near the upper bound of the central bank’s tolerance band in the coming months, while the central bank acknowledged the effects of profit caps on moderating food prices. Meanwhile, high price dynamics in market services are still seen as posing upside risks to inflation, alongside the upward effect of tariffs on inflation expectations, while lower energy and commodity prices pose downside risks.

April CPI surprised moderately to the upside and so there was little expectation that the NBH would tone down its hawkish language. That was the case in Governor Mihaly Varga’s post-decision press briefing, as he reiterated that the base rate may need to be kept at its current level for “an extended period”.