MNI NBH WATCH: Rates Held, But Q1 Disinflation Hopes Alive
MNI (LONDON) - Stronger domestic inflation and an uncertain international environment warrant holding interest rates at their current level with little room for cuts in view, the National Bank of Hungary said on Tuesday, although it added that disinflation is expected to resume this quarter. (See MNI EM NBH WATCH: Policy Hold Ahead of New Projections, Governor)
Headline and core inflation came in above analysts’ expectations in January, the NBH said, as it opted to leave its base rate at 6.50%. Repricings in the services sector, food and fuel, and the high level of inflation expectations are nconsistent with achieving price stability sustainably, it said.
Hungary’s inflation path this year has likely shifted higher than was seen late last year, it conceded, despite an overall improvement in investor sentiment and a recovery in the forint. (MNI EM POLICY: Jan Data Confirms NBH Hold, But Improvements Seen)
Divergences between Federal Reserve and European Central Bank interest rate policies could further increase risk aversion towards emerging markets, the NBH said in a statement, adding that a “careful and patient, stability-oriented approach remains necessary.”
The NBH said it was pursuing a “stable, predictable economic environment [that] fundamentally defines the entire macroeconomic trajectory through strengthening confidence,” while pursuing disinflation as quickly as possible.
The Hungarian economy grew by 0.4% in Q4 2024, the Bank said, though it noted 2025 growth is based on increasingly broad foundations, while fundamentals are improving generally.
“In the Council’s assessment, the uncertain international environment and the outlook for inflation warrant the maintenance of tight monetary conditions,” the NBH said.