MNI NBH WATCH: NBH To Cut By Quarter-Point, Stay Cautious

MNI (LONDON) - The National Bank of Hungary is expected to cut key interest rates by 25 basis points to 6.50% on Tuesday following August's decision to hold. (See MNI POLICY: NBH To Cut 25 Basis Points)

The NBH could confirm that one further cut this year is realistic, with base rate ending the year at 6.25%, though forward guidance will continue to stress the need to proceed cautiously and maintain financial market stability. Deputy Governor Barnabas Virag will repeat that the best way to boost Hungary’s economy is to bring inflation under control, despite government criticism that the NBH has been slow to ease. (See MNI EM INTERVIEW: Next NBH Head To Improve Relations With Gov't)

August CPI inflation of 3.4% was lower than expected after July's 4.1%, thanks to base effects and falling fuel prices a decline. Core inflation edged downwards while the NBH’s sticky price measure stabilised at 5.8%.

September's updated macroeconomic projections should show little change from June, when inflation was seen averaging 3.0-4.5% in 2024, and 2.5-3.5% in 2025 and 2026.

While wage growth is strong and the forint stable, a lack of pick-up in external demand and the still-slow recovery of consumer and business sentiment mean growth remains subdued. ECB and Fed cuts also provide the NBH with a little more room for manoeuvre. (See MNI EM POLICY: Inflation Rise, Fed, ECB, Add To NBH Caution)