Hungary cenbank dashes bets on rate easing amid high CPI, market risks

BUDAPEST: The National Bank of Hungary (NBH) left its base rate unchanged at 13% on Tuesday and kept its hawkish stance, saying that 2024 inflation would be higher than previously anticipated and that global market risks have increased.

The bank, which has recently come under pressure from the government to start trimming its interest rates as inflation is expected to slow from an annual 25.4% in February, made no hint of any room for policy easing in its statement.

Hungary’s economy is expected to slow sharply this year.

“It is necessary to maintain the current level of the base rate over a prolonged period, which will ensure that inflation expectations are anchored,” the Monetary Council said.

Deputy Governor Barnabas Virag told an online briefing that “patience and discipline” was warranted in monetary policy, and Tuesday’s rate decision was unanimous.

Virag said the bank would also apply a patient approach with respect to the one-day quick deposit tool, which carries an 18% interest rate, and will monitor the narrowing of the current account deficit and changes in the risk perception of emerging markets before it considers any change. The bank will also continue to tighten forint liquidity with its tools.

The decisions to leave both the European Union’s highest benchmark rate and the bank’s 18% quick deposit rate unchanged were in line with the unanimous forecast of economists in a Reuters poll last week.

Virag said curbing inflation to single-digits by the end of the year was reachable but “would be a tough game” and required disciplined monetary policy.