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.