MNI NBH WATCH: Rate Hold At 6.5% Seen As Risks Stay To Upside

The National Bank of Hungary is expected to leave rates untouched on Tuesday, with Governor Mihaly Varga again set to confirm that inflation will stay above the tolerance band for at least the rest of 2025. (See MNI EM NBH WATCH: Rates Held, Projections Broadly Unchanged)

The NBH which has kept base rate at 6.5% since September 2024, will continue to emphasise consistency in monetary policy, a stable currency, and anchoring domestic inflation expectations, and will express concern over Hungary’s deficit and debt trajectory heading into 2026. Analysts expect rates to remain steady for the next few months. (See MNI EM INTERVIEW: NBH Rates On Hold Until At Least April - Ex-Gov)

Varga will also repeat last month’s assertion that the baseline scenario in the September projection is surrounded by mostly upside risks to inflation - not least following news that Viktor Orban’s government is looking to expand pension provision by an estimated USD1.6 billion per year ahead of next year’s general election - and downside risks to growth. (See MNI EM INTERVIEW: NBH FinStab Move Signals Clear Concern - Ex-DG)

Varga could stick to the September line that inflation “may decline persistently to the tolerance band in early 2026 and reach the 3% inflation target in early 2027,” though confidence may be in shorter supply ahead of December’s projections.

September’s headline inflation figure of 4.3% was unchanged from July and August, with core inflation steady close to 4% over the same period, despite government price control measures. (See MNI EM INTERVIEW: Hungary Outlook Stagflationary - Ex-NBH's Reiff)

Nominal wage growth of 8.7% in August was down slightly on the previous month but remains strong, despite near non-existent Q2 GDP growth due in large part to continued declines in both the construction sector and industrial output.