MNI NBH WATCH: Base Rate To Hold At 6.5% Despite Price Uptick
MNI (LONDON) - The National Bank of Hungary is expected to hold interest rates at 6.50% for a fourth consecutive meeting despite December’s inflation uptick, with communications likely to focus on the need to maintain a cautious policy approach given heightened uncertainty. (See MNI EM POLICY: NBH Cautious Despite Lower Near-Term Inflation)
December’s headline inflation of 4.6% jumped from November’s 3.7%, itself a half-point above October’s CPI print, but was below central bank expectations. Core inflation strengthened from 4.4% to 4.7%; close to the 5.0% upper end of the range projected in June.
Reduced financial market instability will have provided some relief, but the forint remains weak, leaving little room for manoeuvre ahead of the arrival of a new NBH governor in March.
While some of the rise in CPI inflation was foreseen - the text accompanying December’s decision was clear that inflation would “increase further temporarily until January 2025 and may be above the central bank tolerance band” - higher average gas prices as a result of December’s unusually cold spell were not. (MNI EM NBH POLICY: NBH To Hold Rates As Inflation In Line)
Disinflation is still likely still expected to restart some time in Q1 2025, with inflation falling back over the course of the year, before returning to the 3% central bank target “in a sustained manner” at the beginning of 2026.
But with household inflation expectations also rising, as per December’s Inflation Report assessment that annual inflation would average 3.6–3.7% in 2024 and 3.3–4.1% for 2025, the chances that March’s Inflation Report will be revised upward are growing.
Overall, the NBH will likely double-down on previous hawkish guidance this week, with the base rate seen remaining at the current level “for an extended period,” as part of a “disciplined, restrictive and patient monetary policy.”
Press questions to deputy governor Virag are likely to focus on where and when the NBH sees inflation peaking, and to what extent the interest rate path has shifted rightwards over the medium-term horizon.