Hungary's central bank keeps rates on hold, wary of global risks
Central Bank Decision and Economic Context
By Gergely Szakacs and Krisztina Than
BUDAPEST, April 28 (Reuters) - Hungary's central bank kept its base interest rate on hold at 6.25% on Tuesday as widely expected, with concerns over global energy prices and domestic fiscal risks limiting ITS room for manoeuvre despite gains in the forint.
Global Risks and Domestic Factors
The unresolved conflict in the Middle East and the resulting volatility in global markets have put inflation worries back on the table despite an appreciation in the forint following Hungary's parliamentary election on April 12, which ended nationalist prime minister Viktor Orban's 16-year rule.
Government Transition and Euro Adoption
The incoming government of Peter Magyar's centre-right Tisza party has placed euro adoption back on the agenda, and it plans to take action to unlock billions of euros in frozen EU funds. These plans have boosted the forint, which helps curb prices.
Central Bank's Policy Stance
However, central banks across Central Europe have been cautious about easing policy, mindful of various global risks, and the Hungarian bank said in a statement on Tuesday that maintaining tight monetary conditions was warranted:
"A careful and patient approach to monetary policy remains necessary due to inflation risks arising from geopolitical tensions and the uncertain financial market environment."
Inflation Outlook
With the pass-through of high energy prices, it said inflation would continue to rise this year, even though a stronger forint moderates inflation.
From the third quarter of 2026, inflation "will be above the tolerance band before a sustainable return to the central bank target in 2027 H2", the bank added.
Forint Performance and Market Reactions
STRONGER FORINT HELPS
Hungary's forint <EURHUF=>, which scaled four-year-highs after Magyar's election triumph, traded at 364.70 to the euro at 1306 GMT, firmer than levels around 365.65 before the rate announcement.
Recent Rate Decisions
In February, the Hungarian bank delivered its first 25-basis-point rate cut since late 2024, aided by a slowdown in the rate of annual price growth to 2.1% at the start of the year, below its 3% policy target. Then in March it kept rates on hold.
Analyst Expectations and Forecasts
In the Reuters poll last week, 14 out of 15 analysts projected no change from 6.25% on Tuesday. The median survey forecast projected just 25 bps worth of rate easing to 6.0% by the end of the year, with inflation seen climbing to 4.4% by December, outside the bank's 2-4% tolerance band.
Outlook for Monetary Easing
But analysts at Capital Economics said even that expectation may prove optimistic, projecting the NBH was likely to wait until next year before resuming policy easing.
"We still think monetary easing is some way off. The weakness of inflation partly reflects energy price controls and food price caps introduced by the outgoing Orban government, which are likely to be phased out this year," they said, adding they expect the bank to trim the base rate to 5.50% in 2027.
(Reporting by Krisztina Than and Gergely Szakacs; Editing by Hugh Lawson)
