Mihály Varga: Inflation expectations are high and not in line with the MNB's target

At 2 p.m., the National Bank of Hungary announced that

the Monetary Council had left the base rate unchanged at 6.5% at its interest rate decision meeting today.

This is the eleventh consecutive time that the central bank has decided to keep the base rate unchanged. The decision on the key interest rate came as no surprise, as experts were unanimous before today's meeting that monetary policy had not received any information in the past month that would have changed its basic stance.

Mihály Varga: A cautious and patient monetary policy approach is justified

The central bank's main message remained unchanged:

A cautious and patient monetary policy approach is still warranted,

with two key elements: maintaining financial stability and anchoring inflation expectations.

This forward-looking guidance has not changed, and the central bank has still made no reference to considering changes in monetary conditions in the near future.

Economic assessment: no good news on the inflation front

The performance of the Hungarian economy is being affected by the weakness of the German economy. Our external balance indicators are reassuring, but the upturn in domestic demand observed in the economy may change this in the near future, which the central bank is monitoring closely, says Varga.

Core inflationary pressures are above the central bank's 3% target, with the central bank seeing strong repricing in several areas. Inflation expectations among the general public remain high. These indicators are not in line with either the central bank's target or current inflation.

Housing situation

Household lending is diamictic, which may be further stimulated by the Home Start Program. Due to the expected excess demand, the high dynamics of housing loans may continue.

In response to a question, Varga said that there have always been programs in which loan pricing differed from general market pricing. The government may have been justified in introducing the 3% loan based on general housing market trends. This has only a slight indirect effect on the general interest rate level.

Foundation affairs

The central bank's foundation filed eight criminal charges during its investigation into the foundation scandal, including violations of accounting regulations and forgery of private documents.

Will the rules for Home Start equity be relaxed? We'll find out this week!

The Financial Stability Council may make a decision on this issue. The government's request to make the 10% down payment more general (e.g., applicable to those over 41 years of age) must be considered. A decision on this will be made this week.

The central bank is continuously calculating the expected effects on the housing market, but it is still too early to report on this.

How does the tariff agreement affect GDP growth?

Market players welcomed the fact that at least an EU-US agreement had been reached, but the 15% general tariff rate will have a negative impact on the economy. These effects can be measured in company-level analyses, and it is too early to talk about specific effects, but the beneficial impact of reduced uncertainty is already noticeable.

The MNB's budget forecast does not need to be revised for the time being, as the central bank believes that the government is committed to maintaining its deficit target.

Cover photo (for illustration purposes only): Portfolio