Hungary's central bank, the Magyar Nemzeti Bank, has opted to maintain its key interest rate for the third consecutive policy meeting, aiming to bolster financial stability and achieve a sustainable path to the inflation target.
On Tuesday, the Monetary Council decided to keep the base rate steady at 6.50 percent, aligning with economists’ forecasts. The last adjustment occurred in September when the rate was lowered by 25 basis points.
The overnight deposit rate and the overnight collateralized lending rate were also unchanged, set at 5.50 percent and 7.50 percent, respectively.
"The restrictive monetary policy plays a vital role in maintaining financial market stability and achieving the inflation target sustainably by ensuring positive real interest rates," stated the central bank.
The MNB emphasized the importance of a careful and measured approach to monetary policy moving forward. "The Council believes that geopolitical tensions, erratic financial market developments, and potential inflation threats justify a continued pause in interest rate reductions," it noted.
The central bank anticipates the Hungarian economy to expand by 0.3-0.7 percent this year, 2.6-3.6 percent in the following year, 3.5-4.5 percent by 2026, and 2.5-3.5 percent in 2027.
Inflation is projected to rise temporarily until January 2025, surpassing the central bank's tolerance range, with a resumption of disinflation expected in the first quarter of the subsequent year.
Forecasts indicate that Hungary’s inflation will average 3.6-3.7 percent this year, 3.3-4.1 percent in 2025, and between 2.5-3.5 percent for both 2026 and 2027.
Capital Economics posits that increased inflation at the start of 2025 will likely prevent rate cuts until at least March, when newly appointed governor Mihály Varga assumes office.
"Given the strong wage growth and potential for fiscal easing as elections approach in early 2026, we anticipate interest rates might see a reduction of no more than 100 basis points by the end of 2025," commented Nicholas Farr, an economist at Capital Economics.
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