Zoltán Kurali: We want to maintain tight conditions
Hungary's average inflation expected for 2026 may be 0.6 percentage points lower than previously expected, Zoltán Kurali, Deputy Governor of the Hungarian central bank, said at a background briefing held by the MNB on Thursday.
Imported inflation is lower, energy prices have fallen, and disinflation is evident in durable consumer goods. The forint is also having a disinflationary effect.
Inflation is expected to remain below 3% at the start of next year, reaching the upper limit of the tolerance band in the second half of the year. Assuming that the margin cap is phased out in February, overall inflation will remain within the tolerance band in 2026.
"Based on the improved inflation data, the forward guidance has changed, so we will decide on monetary conditions on a meeting-by-meeting basis," emphasised Zoltán Kurali.
We want to maintain tight conditions,
he sent a message to the market.
The Deputy Governor is holding a background discussion following the MNB's decision on Tuesday to leave its key interest rate unchanged at 6.5%, while opening the door to interest rate cuts. The forint reacted sharply, reaching a level not seen since October against the euro, as expectations of interest rate cuts intensified in the wake of the central bank's announcement.
Financial market stability is an important factor. Regarding the fall of the forint, Kurali said that this is considered to be volatility, which "cleans up positioning", but that "such situations provide a great opportunity for the export sector to hedge its future export revenues".
Repricings can significantly impact the initial inflation rate, which is crucial for interest rates.
"If we feel that there is an opportunity to change monetary conditions, the market should respond accordingly. However, I don't think it's a two-day process," he replied in response to a question from Portfolio. According to Kurali, credibility is a great strength and asset, and consistent decisions are needed.
"I was not surprised by what we saw on the market after the interest rate decision," said Kurali. Regarding the relationship between the forint exchange rate and inflation, he emphasised that repricing does not happen overnight. "We believe that what we are doing is credible when we pay attention to incoming data and respond to it," he continued.
"We are maintaining a visible real interest rate," he continued, adding that
we need to maintain a higher real interest rate than the Czechs and Poles.
In response to questions about the interest rate reduction cycle, Zoltán Kurali said that "to my taste," it would be better if it were "not a one-off" interest rate reduction. At the same time, he emphasised that they need to ensure that inflationary processes are developing favourably, and that this would require them to observe price adjustments at the beginning of the year.
Overall, it seems highly likely that the Monetary Council will consider the first interest rate cut in February, once the extent of repricing at the beginning of the year is clear. In addition to low inflation, interest rate cuts will require financial stability to be unaffected. In other words, the current volatility of the forint must be temporary and not indicative of lasting weakness.
Cover photo: Portfolio
