MNI NBH WATCH: Hold Expected, December Projections In Focus

MNI (LONDON) - The National Bank of Hungary is expected to hold key interest rates when it meets on Tuesday, following a deterioration in risk appetite since September and with inflation seen edging up over the remainder of 2024. (See MNI EM POLICY: Length Of NBH Rates Pause Linked To Risk Appetite)

Deputy Governor Barnabas Virag’s statement last week that rate cuts will be paused in October - and possibly beyond - means the base rate will remain at 6.50% and came after the forint slipped against the euro, as heightened geopolitical risks, higher oil prices and changing Federal Reserve rate expectations weakened investor sentiment.

September CPI inflation was 3.0%, with core inflation at 4.8%. Overall inflation is seen by economists as averaging a little over 4% for the year.

One more rate cut this year cannot be ruled out, but would require a significant rebound in risk appetite and a downside inflation surprise. More likely, members of the Monetary Council will wait until December’s updated macroeconomic projections to assess the case for a cut in Q1 2025 - whether under current governor Gyorgy Matolcsy or his likely successor, Mihaly Varga.

But for now, and having already removed a reference in the policy statement to "scope for lowering the interest rate further," the NBH is expected to maintain its preference for a cautious, stability-oriented approach to rate-setting.