CORRECTED-MNI INTERVIEW: NBH To Hold Rates
(Corrects first and seventh paragraph to make clear the NBH held rates in October, and did not cut)
The National Bank of Hungary will hold rates unchanged next week in the face of forint weakness despite better-than-expected inflation data, former Deputy Governor Julia Kiraly told MNI.
While October’s inflation, at 3.2%, was a positive surprise despite a 0.2-percentage-point jump from September, a weaker currency will not help, said Kiraly, a Monetary Policy Council member from 2007-13.
“There is no reason either to continue cutting or to raise rates, especially in light of incoming inflation data,” she said in an interview.
“It should also be remembered that some degree of exchange rate volatility is normal and to be expected under an independent monetary policy. However, in the past we are seeing a gradual nominal devaluation, and in real terms too.” (See MNI EM INTERVIEW: Hungary Central Bank Faces Volatile 2025-Kiraly)
While forint depreciation has been modest, any weakening above 440 to the euro, from 408 on Nov 14, would force the central bank to adjust interest rates to compensate, she said.
“But at present there are no good grounds for suggesting they might need to,” she added.
ECONOMY IN "BAD SHAPE"
The NBH held its base rate at 6.50% in October. Hungary’s economy is in “really very bad shape,” Kiraly said, with the budget deficit - which is expected to exceed the government’s targeted ceiling of 4.5% of GDP this year - adding further headwinds. (See MNI EM INTERVIEW: Hungary Deficit Target "Realistic", Not Assured)
But she expressed optimism over the strongly-rumoured appointment of current Finance Minister Mihaily Varga as successor to Governor Georgy Matolcsy, when his term expires in the spring.
“I am sure that Mr Varga - if he is appointed - will be a reliable, accountable, focused governor. There are concerns about the overall independence of the central bank, it’s true, given his current role as finance minister, but his appointment is in general a good thing,” she said. (See MNI EM INTERVIEW: Next NBH Head To Improve Relations With Gov't)
“I do not expect a significant shift in the monetary policy just because inflation is already going down. Mr Varga is a reliable guy, and the central bank staff is of a very high professional standard.”