MNI NBH WATCH: Hold Expected Amid Price Pressures, Uncertainty

The National Bank of Hungary is widely expected to leave its base rate untouched at 6.50% on Tuesday, while maintaining its adherence to a “careful and patient approach” in light of elevated domestic inflation expectations, trade policy and geopolitical tensions. (See MNI EM NBH WATCH: Rate Held At 6.5% As Expectations Remain High)

Last month’s headline CPI inflation of 4.4% was slightly higher than expected, despite profit margin caps for certain retailers and voluntary price freezes among banking, insurance and telecoms firms. Core inflation fell to 4.8% from 5.0% in April

Fresh projections due later this week may show the average pace of price increases remaining close to the 4.5-5.1% range seen in March, especially with growth continuing to disappoint, though a small upwards revision is possible.

That has increased the chances of rates remaining steady for the rest of this year. The NBH - including new Monetary Council member Daniel Palotai - continues to stress the need to maintain tight monetary policy to keep inflation and the exchange rate under control. 

Matters may however become more complicated if the outlook for economic activity continues to worsen at the same time as the government provides further fiscal giveaways in the run-up to next year’s parliamentary elections, against a background of widening budget targets versus fiscal outcomes. (MNI EM INTERVIEW: Hungary Outlook Stagflationary - Ex-NBH's Reiff)