MNI NBH WATCH: Rates Held At 6.5%

The National Bank of Hungary left interest rates unchanged at 6.5% on Thursday, saying headline inflation is set to remain volatile despite improvements in underlying inflation. (See MNI EM NBH WATCH: Rate Hold Seen; Projections Key To Guidance)

Having stated in October that price margin caps have had a "significant diminishing effect on inflation,"  the NBH in its most recent decision noted that these restrictions “and the effects thereof carry uncertainty regarding the inflation outlook.” (See MNI EM INTERVIEW: Hungary To Dodge Debt Downgrade-Ex-NBH Official)

Companies’ short-term inflation expectations showed “subdued” dynamics in comparison with previous months, although household inflation expectations - formerly described as at a high level - “remain stagnant,” the NBH said in a statement.

Falls in headline inflation between October and November reflected lower global commodity and food prices, and more moderate monthly repricings in consumer basket items than in H1. The pace of price rises is expected to fall briefly below the 3% target, before rising close to the 4% upper limit of the NBH’s target range next year, though forint strengthening since the autumn could continue to offer some forward benefit, the Bank said.

Consumer prices are now projected  to average +4.4% in 2025 (previously +4.6%), +3.2% in 2026 (versus +3.8%), and +3.3% in 2027. Having stated in September's Inflation Report that inflation is “expected to be 3.0% in 2027,” the NBH clarified that 3% “may be achieved in a sustainable manner in 2027 H2.”

Risks to the updated baseline inflation projection are seen as “balanced,” having been to the downside in September. Hungary’s economy is now expected to expand by 0.5% in 2025, 2.4% in 2026, and 3.1% in 2027, having previously been seen at 0.6%, 2.8% and 3.2%, respectively. 

The Monetary Council remains committed to a “careful and patient approach to monetary policy” due to risks to the inflation environment, with tight monetary conditions currently warranted. Future decisions on the level of the base rate will be taken meeting-by-meeting and in a cautious and data-driven manner, the Council said, with particularly close attention paid to repricings at the start of the year.

Additionally, “in order to ensure the continuing stability of financial markets and the effective transmission of monetary policy, the MNB’s regular FX swap tenders and discount bill auctions will be announced with a longer maturity as well in December.” (See MNI EM INTERVIEW: US-Hungary Swap Deal Sign Limits Will Be Tested)