Hungarian central bank to leave base rate steady again, eyeing CPI risks: Reuters poll

By Krisztina Than

BUDAPEST (Reuters) - Hungary's central bank will keep interest rates unchanged again next Tuesday, according to a Reuters poll that expects hardly any loosening in monetary policy through to the end of 2025, due to inflation risks.

All 14 analysts surveyed between May 19 and 23 said the base rate would stay at 6.5% for the 8th straight month at the May 27 policy meeting as the National Bank of Hungary tries to cut inflation with an economic recovery much weaker than expected.

The poll's median projection is for the base rate to inch down to 6.25% by the end of 2025.

On Thursday, Hungary's central bank governor, Mihaly Varga, said inflation expectations must be anchored in order for the bank to reach its inflation target in a sustainable manner, adding the fight against inflation is "not yet over".

The central bank left its benchmark base rate steady in a unanimous decision in April and said a careful and patient approach to monetary policy was still needed.

Hungarian inflation exceeded 5% in the first two months of the year before retreating to 4.8% in March and 4.2% in April.

"We expect the NBH to keep its base rate unchanged at 6.50% at its upcoming meeting on May 27 and to retain its cautious forward guidance for the key policy rate to remain at its current level for a prolonged period of time," Morgan Stanley economist Georgi Deyanov said in a note.

"We expect the central bank to acknowledge the improving inflation outlook but continue highlighting elevated risks to it and to hint at potential downside revisions to both its GDP and inflation forecasts at the subsequent June core meeting."

New governor Varga, Prime Minister Viktor Orban's former finance minister, has ruled out rate cuts for the foreseeable future despite the poor GDP growth outlook.

The poll sees Hungary's economy growing by only 1% this year, below the central bank's latest forecast for 1.9% to 2.9% published in March.

Standard & Poor's cut Hungary's credit rating outlook to negative from stable last month. Two other rating agencies, Moody's and Fitch, are both expected to review their assessment of Hungary's credit standing in the coming weeks.

(Reporting by Krisztina Than; Editing by Clarence Fernandez)