MNI NBH WATCH: Rates Held At 6.5% As Expected
MNI (LONDON) - The National Bank of Hungary left key interest rates unchanged on Tuesday, with October’s positive inflation surprise lowering the near-term outlook for price growth, but with forint weakening and tax changes expected to add inflationary pressure next year. (See MNI EM NBH WATCH: Hold Expected, 2025 Outlook More Complicated)
Inflation rose to 3.2% and core inflation to 4.5% in October due to pickups in food and fuel prices, the Bank said, though market services prices fell significantly due to declines in mobile phone and internet costs. Household inflation expectations continue to decline, but remain elevated.
“Exchange rate depreciation seen in past months, as well as changes to the system of excise duties, are likely to have inflationary effects in the next year. Anchoring inflation expectations, preserving financial market stability and a disciplined monetary policy are crucial for the consumer price index to return to the central bank target in a sustained manner in 2025,” the Bank said.
October's reference to the CPI index rising to “slightly above 4% by the end of 2024,” with core inflation “likely to be around 5% in the rest of the year,” was removed from the statement, with inflation now expected to rise “temporarily in the rest of the year.”
Recently-increased risk aversion towards emerging markets also poses upside risks to domestic inflation, the NBH said, amid uncertainty around the rate paths of major central banks. (See MNI EM POLICY: NBH Cautious Despite Lower Near-Term Inflation)
The Bank highlighted the importance of the government’s achieving its 2024 and 2025 fiscal deficit targets, noting that while a draft budget for next year “confirmed the 3.7% deficit-to-GDP target, to which deficit reduction measures were also allocated, achieving the fiscal deficit target requires keeping expenditure under control, similarly to 2024.”
It also reiterated its readiness to smooth movements in financial markets by using instruments with longer maturities in December if needed to ensure effective monetary policy transmission.