MNI NBH WATCH: Rate Hold, Price Risks Seen Despite Weak Growth

The National Bank of Hungary left its policy interest rate unchanged at 6.5% on Tuesday, and reiterated that with inflation expected to stay above its tolerance zone for the rest of the year a restrictive monetary policy setting remains key to bringing inflation back sustainably to target. (See MNI EM NBH WATCH: Rates Seen Held At 6.5%, Tone To Stay Hawkish)

Mandatory and voluntary price restriction measures continued to have a “significant diminishing effect” July’s inflation,” the NBH said in a statement, “however, strong corporate repricings can still be observed outside their scope.”

Household inflation expectations also remain at a high level, it added, but the decrease in short-term corporate price expectations slowed last month. Nevertheless, the NBH repeated previous assertions that the pace of price rises “may decline persistently to the tolerance band in early 2026 and reach the 3% inflation target in early 2027.”

After stagnating in Q1, Hungary’s economic output “remained subdued” in Q2, with GDP growth of just 0.1% thanks largely to services. Household spending remained stable, but with real wages still gaining despite a further slowdown in the pace of pay growth, plus government tax changes, already-“buoyant” domestic consumption is expected to strengthen further over the medium term.

Hungary’s prolonged decline in corporate investment looks set to continue, but household lending continues to rise, the Bank said, citing newly-announced government home loan programmes and subsidies that come into effect on an already active housing market. "Therefore, the stock of household loans could continue to expand at a higher-than-expected pace this year and the next." 

In line with the NBH’s stability-oriented approach, a “careful and patient approach to monetary policy remains necessary due to risks to the inflation environment as well as trade policy and geopolitical tensions," the statement concluded. "In the Council’s assessment, maintaining tight monetary conditions is warranted.”