Policymakers Leave Base Rate on Hold at 6.50%

The Monetary Council of the National Bank of Hungary (MNB) decided to leave the central bank base rate unchanged at 6.50% at a monthly policy meeting on Tuesday.

The Council also left the O/N deposit rate at 5.50% and the O/N collateralised loan rate at 7.50%. The rates mark the ends of the central bank's symmetric interest rate corridor.

In a statement released after the meeting, the Council said the decision to keep the base rate on hold was taken "in line with the stability-oriented approach."

The Council affirmed its commitment to achieving the inflation target in a sustainable manner and said maintaining tight monetary conditions was warranted.

"Restrictive monetary policy contributes to the maintenance of financial market stability, the anchoring of inflation expectations consistently with the central bank target and, as a result, to the achievement of the inflation target in a sustainable manner by ensuring positive real interest rates," the Council added.

"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 policymakers said.

At a press conference after the meeting, MNB governor Mihály Varga reaffirmed the Council's commitment to achieving the 3% inflation target in a sustainable manner and said the policymakers' forward guidance remained unchanged. He added that a "cautious and patient" monetary policy approach was justified.

He highlighted the importance of maintaining stability on FX markets to mitigate inflation expectations in the current economic environment and said the strengthening forint supported disinflation.

Varga pointed to upside risks in the external inflation environment and said monetary easing in the United States could be slower than earlier expected, while eurozone rates could remain on hold in the coming months.

Recovery in Hungary remains "subdued," he said. He added that CPI was steady at 4.3% in October, and acknowledged the impact of price restrictions, but noted that underlying price developments stayed strong.

He acknowledged a "slight decrease" in inflation expectations, but said they remained at high levels.