Hungary Holds Rates Steady As Inflation Expected To Remain High

(RTTNews) - The Hungarian central bank left its interest rates unchanged again, on Tuesday, as policymakers assessed that tight monetary conditions were needed amid forecast that inflation is set to remain beyond the tolerance level in the coming months.

The Monetary Council of the Magyar Nemzeti Bank, led by Governor Mihály Varga, left the base rate unchanged at 6.50 percent, as expected. The previous change in the rate was a quarter basis points reduction in September last year.

The overnight deposit rate was retained at 5.50 percent and the lending rate at 7.50 percent.

"A careful and patient approach to monetary policy remains necessary due to risks to the inflation environment as well as trade policy and geopolitical tensions," the central bank said in a statement. "In the Council's assessment, maintaining tight monetary conditions is warranted."

Headline inflation in Hungary was steady at 4.3 percent in August and core price growth slowed to 3.9 percent. That said, inflation levels remain close to and beyond the 2-4 percent tolerance band of the central bank.

The MNB expects inflation the hover above the tolerance band for the rest of the year and ease persistently within the range in early 2026 and thereafter hit the 3 percent target in early 2027.

The inflation forecast for this year was slightly lowered to 4.6 percent from June, while the outlook for next year was raised to 3.8 percent. Price growth was forecast at 3.0 percent in 2027.

The Hungarian economy grew a modest 0.1 percent in the second quarter after stagnating in the first three months of the year. The expansion was underpinned by strong consumption, while investment and exports were weak.

The central bank expects a slow economic recovery for the rest of the year that is supported by robust consumption and a gradually normalizing external economy. The growth forecast for this year was lowered to 0.6 percent from that seen in June, mainly due to the drought that has hurt the farm sector.

Rising real wages and government measures are expected to underpin the strong consumption trends throughout the forecast horizon, the bank said. Further, the bank expects a faster growth in exports as the European economy improves and also due to the increase in capacity-boosting investment projects. The MNB forecast 2.8 percent growth for next year and 3.2 percent in 2027, the same as in the June round of projections.

The Monetary Council assessed mostly upside risks to inflation and downside risks to growth. The latest projections assume stronger consumption growth, escalating geopolitical tensions, and prolonged weak growth in Europe, the bank added.

The bank expects the fiscal deficit to decrease further this year as the interest expenditure of the government lessen. However, the public debt reduction in expected to stall due to the higher cash deficit.

The next policy session is due to October 21.