MNI NBH WATCH: NBH Holds Rates, Tweaks Inflation Outlook
MNI (LONDON) - The National Bank of Hungary left key interest rates unchanged on Thursday, saying that inflation would pick up further into Q1 2025 and pointing to geopolitical tensions and volatile financial markets. (See MNI EM NBHWATCH: Policy Pause To Continue, Fresh Projections Due)
The base rate remained at 6.50% after inflation rose 0.5 percentage point in November to 3.7%, largely due to higher fuel prices, though core inflation dipped 0.1 percentage point to 4.4% on continued services disinflation, the NBH said in a statement.
While inflation will increase further “temporarily until January 2025 and may be above the central bank tolerance band. Disinflation will restart thereafter, in 2025 Q1,” it added. (See MNI EM NBH POLICY: NBH To Hold Rates As Inflation In Line)
The NBH narrowed the range of its 2024 inflation projections, from an average between 3.5 and 3.9% seen in September to 3.6-3.7%. Inflation is now seen averaging between 3.3-4.1% in 2025 and 2.3-3.5% in 2026.
The Bank also made reference to Moody’s recent lowering of Hungary’s investment grade rating from stable to negative, which was balanced by Fitch’s decision to raise its outlook from negative to stable, saying that "in addition to macroeconomic fundamentals, the perception of fiscal and monetary policy outlook had a key role in the credit rating agencies’ assessment."
Hungary's economy is expected to grow by 0.3–0.7% in 2024, by 2.6–3.6% in 2025, and by 3.5–4.5% in 2026. In September GDP was seen expanding by 2.7–3.7% in 2025 and 3.5–4.5% in 2026.
“The expected interest rate paths and future fiscal policies of major economies are still surrounded by uncertainty. Ongoing geopolitical tensions are raising upside risks to inflation through risk aversion towards emerging markets. Looking ahead, a careful and patient approach to monetary policy is warranted. In the Council’s assessment, geopolitical tensions, volatile financial market developments and the risks to the outlook for inflation warrant further pause in cutting interest rates,” the NBH statement said.