The Hungarian National Bank was not as bold with the base rate today as weeks ago

The Monetary Council of the National Bank of Hungary (NBH) decided to leave the central bank base rate unchanged at 6.25pc at a monthly policy meeting on Tuesday.

Base rate remains

The Council also left the O/N deposit rate at 5.25pc and the O/N collateralised loan rate at 7.25pc. The rates mark the ends of the central bank’s symmetric interest rate corridor. In a statement released after the meeting, the Council said that maintaining tight monetary conditions was warranted. “A careful and patient approach to monetary policy remains necessary due to inflation risks arising from geopolitical tensions and the uncertain financial market environment,” the policy makers said.

“The Council is constantly assessing the impact of incoming macroeconomic data and financial market developments on the inflation outlook, based on which it will take decisions on the level of the base rate in a cautious and data-driven manner,” they added.

“In the current economic environment, maintaining the stability of domestic financial markets, especially that of the foreign exchange market, is crucial in anchoring inflation expectations and thus achieving price stability,” the Council said.

The policy makers noted they had decided on March 10, after the start of the Iranian conflict, that the NBH would meet major FX liquidity needs arising from covering energy imports, ensuring balance on the FX market even during turbulent periods.

3pc inflation target

At a press conference after the meeting ended, Mihály Varga, the central bank governor, affirmed the Council’s commitment to achieving the 3pc inflation target in a sustainable manner.

He highlighted “significant uncertainty” stemming from geopolitical developments, but said that Hungary’s economic fundamentals were better now than at the start of the 2022 energy crisis.

Varga noted that policy makers had discussed the central bank’s latest quarterly Inflation Report at the meeting which showed inflation reaching the price stability target, in a sustainable manner, in the second half of 2027, in line with the forecast in the previous forecast published in December.

GDP growth low

The NBH’s fresh Inflation Report puts average annual CPI at 3.8pc in 2026 and 3.7pc in 2027, up from 3.2pc and 3.3pc, respectively, in the December report.

CPI is set to climb from March onward on the back of higher energy prices, albeit mitigated by price caps on motor fuels, according to the forecast. From Q3 2026, CPI will rise over the 3.0pc +/-1pp tolerance band, before returning to the 3pc target in H2 2027.

The report puts GDP growth at 1.7pc in 2026 and 3.0pc in 2027.

The Council said the forecast was surrounded by mostly upside risks to inflation and downside risks to growth. Risk scenarios highlighted by the Council presumed prolonged geopolitical tensions, a faster growth in consumption, and slower-than-expected improvement in external economic activity.

If you missed our previous articles concerning the National Bank of Hungary:

• Lessening pressure? Inflation in Hungary is at an 8-year low
• Péter Magyar: National Bank Governor Varga was unwilling to surrender to mafia boss PM Orbán

Featured image: Facebook/Varga Mihály