MNI NBH WATCH: Hungary CenBank Slows Cuts Pace To 25Bps, Base Rate 7.00%

The National Bank of Hungary slowed the pace of its interest rate cuts from 50 to 25 basis points on Tuesday, leaving its base rate at 7.00%, citing financial market volatility, geopolitical tensions and upside risks to the inflation outlook as justification for maintaining a "careful and patient" approach to monetary easing. (See MNI EM NBH WATCH: Macro Uncertainty Boosts Chances Of 25bp Cut)

While the outlook for domestic inflation has improved over previous quarters, the NBH said in a statement, "significant" risks in the external environment, notably delayed Federal Reserve rate cuts, continue to reduce emerging economy central banks’ room for manoeuvre, with Hungarian monetary policy now entering a "new phase."

CPI inflation is expected to fluctuate close to the upper bound of the central bank's tolerance band in the coming months, while core inflation is seen ending its recent decline and rising to around 5.0% by the end of the year. The NBH sees upside risks to the inflation outlook and downside risks to economic growth. (See MNI EM POLICY: NBH To Consider Slower Pace Of Cuts)

Against a background of deteriorating global sentiment, market volatility increased following the elections  the European Parliament, the Bank continued.

Forward guidance was changed, with the Monetary Policy Council  "constantly assessing incoming macroeconomic data [and] the outlook for inflation and developments in the risk environment, based on which it will take decisions on the level of the base rate in a cautious and data-driven manner," rather than producing an expected year-end interest rate range.

April's current account surplus rose to another historically high level, and could exceed previous projections in the coming years, the Bank said. Growth is expected to be supported primarily by domestic demand, with strong wage growth set to have an expansionary effect on consumption. Labour markets, while tight, continue to show signs of easing.