MNI NBH WATCH: Macro Uncertainty Boosts Chances Of 25bp Cut
National Bank of Hungary will weigh merits of slower easing pace at policy meeting Tuesday
The National Bank of Hungary is set to cut rates again on Tuesday, but with inflation edging higher and the macro environment seen as less stable than last month, the chances are rising of another slowdown in the pace of reductions, to 25 basis points from 50 at the May meeting. (See MNI NBH WATCH: Hungary CenBank Cuts 50bps to 7.25% As Expected)
Deputy governor Virag reiterated in May that the NBH’s mid-year target for rates was between 6.75% and 7.00%. With the base rate currently at 7.25%, that means both 50bp and 25bp will both be on the table on Tuesday.
Headline inflation rose from 3.7% in April to 4.0%, with core at 4.1% and 4.0%, respectively, and while this is still consistent with both the Bank’s tolerance band and market expectations, the NBH’s emphasis on a “careful and patient” approach means a quarter-point cut may be gaining ground in the minds of policymakers.
Other factors pointing to a slowdown include recent financial market instability, a weaker forint, and the knock-on effects of delayed Federal Reserve easing. The absence of clear ECB forward guidance following its own 25bp rate cut earlier this month has also added to the uncertainty, as has the political fallout from this month’s European elections.
Strong wage and service sector price growth will be factors as the NBH aims to avoid adding fuel to a reflationary spell driven by base effects and core prices which is expected later in the year.
The outlook for Hungary’s export and manufacturing sector, together with domestic consumption have seen modest improvement, while the current account balance continues to beat expectations - with more good news anticipated tomorrow - providing some support for the currency.
But the HNB will aim to take careful, date-dependent steps. Communications will emphasise increased global uncertainty, while local price pressures point to there being little room for manoeuvre on rates. (See MNI EM INTERVIEW: Hungary Central Bank Faces Volatile 2025-Kiraly)