Hungary central bank has ‘work to do’ on inflation expectations, Mager says

BUDAPEST: Hungary’s central bank has “work to do” on inflation expectations, rate-setter nominee Andrea Mager told a parliamentary confirmation hearing on Monday after a surge in inflation at the start of the year.

The National Bank of Hungary is widely expected to leave its base rate steady at the European Union’s joint-highest 6.5% level on Tuesday, the last meeting chaired by outgoing Governor Gyorgy Matolcsy.

The decision would mark the fifth successive month of no change by the bank after rate cuts worth a combined 11.5 percentage points, aided by a retreat in inflation from the EU’s highest levels of more than 25% two years ago.

Mager, whose nomination by Prime Minister Viktor Orban’s ruling Fidesz was first reported by Reuters on Friday, also said that if appointed, she would focus on financial market stability, which is necessary to meet the bank’s 3% inflation target.

“January inflation came in at 5.5%, which means that the incoming members of the Monetary Council have work to do on anchoring inflation expectations,” Mager told the committee, which is likely to rubber-stamp her nomination.

Mager said the law clearly laid out the bank’s primary objective, which was reaching and maintaining price stability, adding that financial market stability was also important given a stronger pass-through of exchange rate moves into prices.

The nine-strong Monetary Council, which has faced strong pressure from Orban’s cabinet to lower interest rates, is headed for a shake-up, with the mandates of rate-setter Gyula Pleschinger and two deputy governors also expiring between March and October.

Investors are closely watching the transition amid lingering market concerns that an Orban-aligned majority of rate-setters could reduce borrowing costs ahead of a 2026 national election amid a weaker-than-expected economic recovery.

Economists polled by Reuters have lifted their outlook for average 2025 inflation by 70 bps to 4.9%, while slashing their economic growth forecast to 2% from 2.45% seen in January.

Pleschinger told Reuters that the inflation rebound would leave no scope for the bank to cut interest rates this year and any premature rate easing amid an impending leadership change would hit the bank’s credibility.