MNI NBH WATCH: Rates Held At 6.5%, Inflation Seen Moving Lower

The National Bank of Hungary left interest rates unchanged for a 14th consecutive meeting on Tuesday, but said that the extension of official price controls could mean inflation falls faster next year than previously seen. (See MNI EM NBH WATCH: Sticky Price Growth Reinforces Policy Hold)

The NBH held its base rate at 6.5% as expected, with October’s headline inflation figure unmoved since July at 4.3%, though core inflation picked up 0.3 percentage points to 4.2%, it said in a statement.

The central bank repeated its assertion that price restriction measures are having a “significant” inflation-reducing effect, while noting high rates of price hikes in areas not covered by the caps. (See MNI INTERVIEW: US-Hungary Swap Deal Sign Limits Will Be Tested)

Inflation is expected decline persistently to a level within the tolerance band “by the end of 2025 and temporarily decrease further at the beginning of 2026,” as a result of the extension and widening scope of price caps, the NBH said, in a change from its expectations in October for this only to occur “in early 2026.” 

Forint strengthening remains a source of greater price stability, the Bank said, though it deleted a reference to a possible decrease in the fiscal deficit this year, after the government announced it will reach 5% of GDP this year and next. (See MNI EM INTERVIEW: Hungary To Dodge Debt Downgrade-Ex-NBH Official)

“On the forecast horizon, higher budgetary expenditures have a stimulating effect on domestic demand and make reducing the public debt-to-GDP ratio harder,” it added.

Hungary’s current account surplus dipped from EUR365 million in August to EUR304 million in October, though Hungary’s external balance will strengthen further from 2026, thanks to output from new investments, the NBH said.

“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. In the Council’s assessment, maintaining tight monetary conditions is warranted,” the Monetary Council said.