MNI NBH WATCH: Hungarian Rates Unchanged, Base Rate 6.5%

The National Bank of Hungary held key interest rates as expected on Tuesday, reiterating its commitment to a cautious monetary policy approach and stressing the continued role of positive real rates in maintaining financial market confidence and moderating domestic inflation expectations amid global uncertainty. (See MNI EM NBH WATCH: Rates Seen Held Despite March Inflation Dip)

Financial markets, already volatile in March, saw a "significant" increase in uncertainty in the intervening period to April's Monetary Council, the NBH said in a statement, with the threat of rising global tariffs seen further undermining already subdued levels of manufacturing, exports and investment. 

Inflation fell to 4.7% in March and is expected to fall further in April, remaining near the upper bound of the central bank’s tolerance band in the months ahead, helped by falling fuel prices, the effects of government food price caps, and slowing services inflation, it said.

Households' and firms' inflation expectations remain at high levels, and moderating these is "key" to achieving the NBH's target.

Risks to inflation projections have increased due to the "different timing and opposite direction of the effects of tariff announcements," the NBH said, with falling global commodity prices pointing to lower inflation in the short term, but with the possibility that upside risks could intensify in the medium term in the event of increases in tariff rates. Increased financial market uncertainty and aversion to Hungarian assets are also risks adding to inflationary pressures through the exchange rate channel, the Bank said.

"In the current macroeconomic environment, the Bank can make the most effective contribution to the easing of economic agents’ increased precaution and to sustainable economic growth by achieving price stability and maintaining financial market stability," it said.

Pay growth remains strong and employment levels high, though labour markets have eased somewhat over recent quarters. 

As indicated last month, domestic consumption is expected to grow further in 2025, supported by rising real wages and government tax cuts. Growth, which has until now been mainly consumer-driven, is expected to be increasingly balanced over the forecast horizon as large capacity-enhancing industrial investment projects start production.