MNI NBH WATCH: Rates Seen Held Despite March Inflation Dip

The National Bank of Hungary is expected to leave interest rates unchanged despite March’s downside inflation surprise when it meets on Tuesday, with new Governor Mihaly Varga also seen maintaining a hawkish tone.

Headline inflation came in lower than expected at 4.7% in March - down from 5.6% the previous month, on the back of slowing services prices, lower fuel prices, and, to a lesser extent, government food price caps.

The effect of the latter could be felt more strongly in April, but with core inflation - 5.7% last month - still riding high, and communications continuing to stress the need for a careful approach despite downside risks to the growth outlook, a base rate hold at 6.5% seems inevitable.

The central bank found itself embroiled in a public spat over alleged financial misdeeds by opposition leader Peter Magyar last week, but MNI has heard from a senior former staffer that Varga’s ascendence and associated personnel changes have brought additional credibility and confidence. Even inflation averaging around 5% gives little scope for rate reductions this year. (See MNI EM INTERVIEW: Varga Calms Cloudy Outlook - Ex-NBH's Kiraly)

The forint, which has depreciated slightly over recent weeks but has been largely stable, remains sensitive to market volatility, while Hungary’s recent S&P downgrade, the prospect of fiscal action as national polls draw nearer, and the ever-present threat of US tariffs - which the NBH views as inflationary - offer further reasons for maintaining a cautious stance. (See MNI EM INTERVIEW: Hungary Price Caps To Boost Inflation- Ex-NBH)