MNI NBH WATCH: NBH Says May Hold For Extended Period

MNI (LONDON) - The National Bank of Hungary is ready to hold interest rates at their current level until weakening international investor sentiment, volatile commodity prices and upside inflation risks have improved, it said on Thursday. (See MNI EM NBH WATCH: Hold Expected, December Projections In Focus)

“To ensure the effectiveness of monetary policy transmission, the MNB stands ready to smooth movements in financial markets by using instruments with longer maturities in December, in addition to one-day FX swap tenders announced on a daily basis and weekly discount bill auctions,” the NBH said.

“If warranted by the external environment and the inflation outlook, the base rate may remain at the current level for an extended period, causing an increase in our relative interest spread,” it added. (See MNI EM POLICY: Length Of NBH Rates Pause Linked To Risk Appetite)

Geopolitical conflicts have driven up energy prices and emerging market risk premia, increasing upside risks to inflation, the statement added, noting an upward shift in expectations for the Federal Reserve’s interest rate path.

Domestic inflation remains consistent with September’s projection, the NBH said, and is expected at slightly above 4% by year’s end, amid persistent volatility and upside risks. Core inflation is seen at around 5% for the remainder of 2024.

The external interest rate environment may also ease more slowly than previously expected, with the expected interest rate paths of the world’s major central banks still surrounded by uncertainty.

Continued strong wage increases are seen supporting a slow improvement in consumer sentiment, with household consumption expected to be the main driver of GDP growth over the coming months, becoming more pronounced next year.

Corporate investment should also improve, with growth further supported by the existing and newly-announced foreign direct investment that will enhance capacity and stimulate exports.

But subdued European economic activity will continue to act as a near-term brake on domestic exports, with Hungary’s economy still expected to grow by 1.0–1.8% this year, 2.7–3.7% in 2025 and 3.5–4.5% in 2026.