Hungary central bank keeps base rate on hold at 6.5%

The decision on the benchmark interest rate came as no surprise, with experts unanimous ahead of today's meeting that monetary policy had not received any information over the past month that would have changed its basic stance.

The MNB has been seeing a broadly similar picture for some time now. According to this, inflation is persistently above the central bank's 3% target (even with the margin cap trying to artificially suppressing it), and from a financial stability perspective (in practical terms, in terms of the forint exchange rate), the extremely uncertain international environment makes it necessary to keep interest rates high. For this reason, monetary policy tools cannot directly stimulate the Hungarian economy, which is unable to achieve meaningful growth. This is why the central bank has long emphasized that “the risks surrounding the inflationary environment, as well as trade and geopolitical tensions, continue to necessitate a cautious and patient monetary policy” and that “maintaining tight monetary conditions is justified.”

This picture has changed only slightly with the data and information received in August.

Although July's inflation data shows a decline, the annual rate of inflation would still be close to 6% without official price interventions. The forint strengthened slightly, but exchange rate volatility has increased again in recent days, indicating that our domestic currency remains exposed to fluctuations in risk premiums and global investor sentiment. The relative strength of the forint is ensured by high interest rates, and a decline in these would obviously increase the risk of weakening.

For the above reasons, analysts believe that the MNB will not change not only interest rates but also its communication policy. This will be revealed in the central bank's announcement at 3 p.m. and at the press conference starting at the same time, where Governor Mihály Varga will speak. (We will report on these as usual.)

From a communication perspective, the central bank is currently in a comfortable position. The central bank's inflation report, which contains its assessment of the economic situation and forecasts, will be published twice more this year (in September and December), and these could be good opportunities to lay the groundwork for an interest rate cut in the near future. According to market pricing and analysts' expectations, the MNB will not touch interest rates this year.

Cover photo (for illustration purposes only): Portfolio