No relief yet: Hungarian central bank keeps tight grip amid inflation fears
The Monetary Council of the National Bank of Hungary (NBH) decided to leave the central bank base rate unchanged at 6.50pc at a monthly policy meeting on Tuesday.
The Council also left the O/N deposit rate at 5.50pc and the O/N collateralised loan rate at 7.50pc. The rates mark the ends of the central bank’s symmetric interest rate corridor.
In a statement released after the meeting, the Council said the decision to keep the base rate on hold was taken in line with the policy-makers’ “stability-oriented” approach. “Maintaining tight monetary conditions is warranted,” the Council added.
“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 Council said.
“Restrictive monetary policy contributes to the maintenance of financial market stability, the anchoring of inflation expectations consistently with the central bank target and, as a result, to the achievement of the inflation target in a sustainable manner by ensuring positive real interest rates,” it added.
At a press conference after the meeting, central bank governor Mihály Varga said the base rate could remain at the current level for “an extended period”.
He added that risks to the inflation environment, as well as trade policy and geopolitical tensions, required a “careful and patient” approach to monetary policy. Varga said tariff announcements had led to risks to inflation with different timing and contrasting impacts on the domestic economy.
He added that headline CPI was expected to remain near the upper bound of the central bank’s 3.0pc +/-1pp tolerance band in the coming months. While the price of food has decreased on a monthly basis, he said repricing of market services remained above the historical average. Inflation expectations have decreased, but remain at high levels, he added.
Maintaining financial market stability and anchoring inflation expectations are “key”, he said. He added that the Council’s forward guidance had not changed.
Addressing the global environment, Varga said sentiment on international financial markets had improved as the first trade agreements reached amid the tariff war were more favourable than expected. He acknowledged a slight rise in energy and commodities prices, but said they were still under levels ahead of announcements on tariff increases.
Expectations for the interest rate paths of big central banks have shifted upwards amid the volatile environment, he said. Commenting on domestic trends, he noted that GDP had stagnated in the first quarter. April CPI was in the central bank’s forecast range, but inflation outlooks are surrounded by risks, he added.
Hungary’s assessment of financial and capital markets is supported by improving fundamentals, he said. Local banks are well-capitalised and have ample liquidity, he added. The minutes of the meeting on Tuesday will be released at 2:00 in the afternoon on 11 June.
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