MNI POLICY: NBH Cautious Despite Lower Near-Term Inflation

MNI (LONDON) - Recent forint weakness and the risk of additional price pressures in 2025 means the National Bank of Hungary is likely to hold its policy rate at its meeting 6.50% this week in line with market expectations, MNI understands.

While last month’s positive data surprise lowered the short-term outlook for inflation, and the impact on prices of currency depreciation has so far been limited, the NBH is likely to be cautious in view of the potentially inflationary impact of the government’s 2025 budget proposals, as well as local and global market movements.

Weakness in the forint in the wake of the U.S. election has been in line with that seen in other emerging-market currencies.

But the exchange rate has become more important over the past decade as its passthrough on inflation has increased. The impact of exchange rate movements on household behaviour has also strengthened, and the central bank will be wary of their effect on other economic sectors. (See MNI EM INTERVIEW: NBH To Hit Pause - Former Deputy Governor)

POSITIVE SURPRISE

Annual inflation jumped 0.2 percentage point on the month to 3.2% in October, but was still lower than expected by the central bank, which in its September forecast saw prices rising at a faster rate towards the end of the year before gradually declining over the course of 2025. (See MNI EM INTERVIEW: NBH To Choose Stability Over Cuts -Ex Gov Simor)

The central bank will also have noted that disinflation was most pronounced in sectors such as telecommunications, where profits had previously been among the strongest, likely reflecting reduced demand.

With market concern over a possible increased political influence over the NBH after Governor Gyorgy Matolcsy’s term ends in March, officials will have welcomed recent government messages regarding Hungarian monetary policy’s future independence and continued focus on stability.