Inflation and growth risks have increased in Hungary - central bank chief
Gloomy IMF, cautious MNB
Varga said that Hungary, as an open and export-driven country, would have to reckon with the IMF's latest forecast, which shows a worsened economic outlook.
The IMF is much more pessimistic about Hungary's growth prospects than the government, forecasting output growth of only 1.4% in 2025 and 2.6% in 2026, compared with the cabinet's forecast of 2.0-2.5% this year and 4% next year.
Varga is also looking forward to the first quarter GDP data to be released by the Central Statistical Office (KSH) tomorrow, after which he may consider a possible revision of the central bank's March growth forecast. (The median of the central bank's end-March forecast March is 2.4% for 2025.)
Click on the link below for the results of Portfolio's Q1 GDP survey.
Varga about the margin cap
The MNB has assumed that the margin cap will end at the end of May, as this is the latest official announcement by the government. The central bank will assess the measure over a time horizon of at least one year.
Risk perception is key
Varga stressed that the opinion of the rating agencies on Hungary is basically positive, but pointed out that the cut to the outlook by Standard & Poor's makes it important to have the Hungarian market assessed as a stable one. The necessary pillars for this are
- a return to growth with improving external and internal balance indicators;
- a stable banking system, increasing household savings; and
- declining debt indicators and a zero primary fiscal balance.
Inflation, growth, stability
While the fall in commodity prices points to lower inflation, the possibility of higher tariffs is an upside risk over the medium term.
A global increase in tariffs could lead to subdued export performance, while rising uncertainty could lead to the postponement of some investments.
Risk-averse investor behaviour towards domestic assets carries a risk of high inflation.
Uncertainty is the key word now
As expected, Varga emphasised the increase in uncertainty, that is the main message. Both growth and inflation risks have risen.
The fall in commodity prices (especially oil) is disinflationary. Oil prices have quickly passed through to fuel prices, contributing to the slowdown in inflation in March. Services inflation remains dynamic, but voluntary price-control commitments by players in the banking and telecom sectors will have a moderating effect going forward.
Here's the Monetary Council's rationale
The central bank believes that the tariff war in the US and Europe could have opposing effects, while uncertainty about the path of inflation has increased. In the midst of major changes, the central bank continues to opt for a cautious and patient monetary policy. The full statement is to be found below, with highlighting by Portfolio.
Inflation to retreat further in April
Inflation is expected to remain close to the upper end of the central bank's tolerance band (4%) in the coming months. However, trade and geopolitical tensions have further increased the risks to the inflation outlook.
Therefore, maintaining the monetary conditions is warranted, with the benchmark rate likely to remain at current levels for an extended period.
International financial risks have increased, with risk aversion towards emerging markets rising.
Domestically, inflation and growth risks have increased. Domestic financial and capital market sentiment is stable.
