MNI NBH WATCH: Another Rates Hold As Expectations Stay High

The National Bank of Hungary is expected to leave interest rates unchanged on Tuesday, with the base rate held at 6.5% for the eighth consecutive meeting, as price controls on key goods fail to cut through. (See MNI EM NBH WATCH: Hungarian Rates Unchanged, Base Rate 6.5%)

Hungary’s economy remains weak, and wage growth continues to slow. But headline inflation surprised to the upside in April, at 4.2%, while core inflation came in around 5%, leaving little room for easing this year.

Communication is likely to remain hawkish, and there may be a repeat of last month’s assertion that moderating households’ and firms’ price elevated price expectations is central to achieving the inflation target.

Governor Mihaly Varga may also draw on his recent speeches to the BIS and the German-Hungarian Chamber of Industry and Commerce, emphasising the need for a “disciplined and consistent” policy approach on the way to permanently low inflation and a stable investment environment, while also highlighting the role of Germany’s economic recovery in boosting domestic fortunes.