The central bank is cautious and patient, says Mihály Varga
Cautious and patient
"The Council remains committed to achieving the inflation target in a sustainable manner, which requires a cautious and patient monetary policy approach. In line with this, the Council kept the base rate at 6.5% at today's meeting," Mihály Varga began.
The central bank will lower the reserve requirement ratio for banks from 10% to 8% from August, a technical move that does not imply a change in the stance of monetary policy, the Governor said. With the end of the central bank's collateralised lending programmes, the free liquidity surplus of the banking system has decreased substantially, and the Monetary Council decided to lower the reserve requirement ratio accordingly, Mihály Varga explained.
Inflation expectations still high
Household inflation expectations remain above the level consistent with price stability, while corporate inflation expectations have declined, Varga stressed. According to him, achieving the inflation target requires financial market stability in addition to lower inflation expectations.
The US and Europe are both boosting their economies
The US and EU fiscal packages are expected to boost economic growth from 2026. For the US, this will be 0.5% per annum between 2025 and 2034, while for the EU it is expected to be 0.3-0.4%, said Mihály Varga.
Second quarter likely to have brought only stagnation again
Based on available data, we expect economic growth to remain stagnant in the second quarter, while a gradual pick-up is expected in the second half of the year, Varga said.
Regulatory and voluntary price-containment measures have a significant disinflationary effect, lowering the overall rate of price increases by 1.5%, the Governor said, referring to the central bank's estimates. Lowering inflation expectations is key, and anchoring them in line with the central bank's target can contribute to sustainable economic growth, according to Mihály Varga.
A stability-oriented monetary policy is still needed in the current economic environment. In the Council's view, price stability can be achieved in a sustainable manner through a tight monetary policy in the context of the risks to the inflation path, the Governor stressed.
When will Hungary adopt the euro?
For the Hungarian economy, meeting the conditions for joining the euro is crucial. Today, the most important goals of economic policy are low inflation, low budget deficits, price stability and stable growth.
If these conditions are met, then we can think about whether Hungary needs the euro and what the path for its adoption should be,
Varga said in response to a question.
They still believe in a an annual growth rate of 0.8%
We do not see any incoming data that would change our forecast for economic growth of 0.8% in 2025, as presented in the June Inflation Report, the Governor replied to an inquiry.
The gold reserve is there
In March, I ordered a review of the gold reserve, which lasted for three months, and then we allowed MPs to check the gold reserve, the Governor said.
As one of the countries with relatively high proportions of gold reserves by international standards,
the need to increase gold reserves in the coming years should be reviewed.
This examination has started and the Monetary Council will discuss the proposals, Varga added.
Uncertainty is the only certainty
There are changes around us that make one thing certain, uncertainty, and it is in this environment that we have to make our decisions. The June inflation forecast can give market participants an indication of what to expect in the interest rate path, but we move month by month and make decisions depending on the information we receive, the Governor stressed regarding the expected interest rate path.
Cover photo (for illustration purposes only): Portfolio
