National Bank of Hungary council sets base rate

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 acknowledged that January CPI, at 5.5pc year-on-year, had exceeded expectations and was driven by accelerating price dynamics of market services, fuel and processed food, while household inflation expectations remained “at a high level”. It added that repricing of market services at the beginning of the year had “well exceeded” the historical average, reflected by price hikes in the telecommunications and banking sectors.

The National Bank of Hungary‘s Monetary Council said the disinflationary trend was expected to restart in the first quarter, supported by more moderate repricing of market services compared to a year earlier, but pointed to evidence of a further increase in the risk of a higher inflation path in 2025, with inflation returning to the the 3pc +/-1pp tolerance band later than projected in the central bank’s latest quarterly Inflation Report released in December.

“Anchoring inflation expectations, preserving financial market stability, and a disciplined monetary policy are crucial for the consumer price index to return to the central bank target in a sustained manner,” the Council said. “A careful and patient approach to monetary policy remains warranted due to trade policy and geopolitical tensions, upside risks to inflation as well as to uncertainty surrounding the future interest rate paths of the world’s leading central banks,” it added.

At a press conference after the meeting, Barnabás Virág, a central bank deputy governor, said a “cautious, patient, stability-oriented” approach remained necessary, adding that the Council deemed tight monetary conditions warranted in the context of the uncertain international environment and inflation outlooks. He said that tight monetary policy could contribute to financial market stability and to achieving the inflation target by ensuring positive real interest rates. Fielding questions, Virág said the option to keep the base rate on hold was the only one discussed at the meeting. A unanimous vote supported it, he added. He said the base rate could remain at is current level “for an extended period”.

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UPDATE

Virág said policy makers were closely monitoring changes in inflation expectations, the pass-through of exchange rate movements, commodity price changes and the impact of trade policy developments. He noted the effect of developments in Hungary’s external balance and achieving fiscal targets on the country’s risk perception. Responding to a question, he said the commitment to disciplined fiscal policy remained strong.