MNI NBH WATCH: New Governor, New Projections, Same Base Rate

The National Bank of Hungary is widely expected to keep its base rate unchanged at 6.5% this week after inflation strengthened again, with new Governor Mihaly Varga likely to signal a continuing pause following its easing cycle.

Inflation has been on a steady upward trend since last autumn, when September's CPI growth of 3.0% prompted the most recent cut, by 25 basis points, further reducing the base rate from its 13% peak a year earlier. February’s CPI inflation of 5.6% - coming after January’s 5.5% upside surprise, and with core inflation jumping nearly half a percentage point to 6.2%, leaves the NBH with little choice but to hold. 

New macroeconomic projections could see the rate path move somewhat higher, though it may be too soon to say how large a contribution the government’s recently announced price caps on food items will make to the outlook. 

March’s meeting will be the first to be chaired by former finance minister, now NBH governor, Mihaly Varga, who has clearly indicated his preference for maintaining a cautious approach.  He will be joined by Andrea Mager, who replaces Gyula Pleschinger following the expiration of his term on the Monetary Council.

There had been optimism within the central bank that the pace of price growth had peaked in January, with the base case then being that the forint's recovery and relative stability would help to maintain a slow descent by inflation to target - even if there was little room for cuts this year. (See MNI EM POLICY: Jan Data Confirms NBH Hold, But Improvements Seen)