Central Bank Leaves Base Rate Unchanged

At its meeting on January 28, 2025, the Monetary Council of the National Bank of Hungary (MNB) reviewed the latest economic and financial developments and decided not to change the central bank interest rates with effect from January 29, 2025, MNB said in a statement.

According to the communiqué, the primary objective of the National Bank of Hungary is to achieve and maintain price stability. Without prejudice to its primary objective, the Magyar Nemzeti Bank preserves financial stability and supports the Government’s economic policy, as well as its policy on environmental sustainability.

EU industrial and retail sales indicators point to subdued economic growth in 2024 Q4. By contrast, US growth was strong based on incoming data and the rate of economic growth picked up in China as well in the fourth quarter. The weak outlook for European industrial production and the generally tense geopolitical situation continue to pose risks in terms of external economic activity.

In December, inflation picked up to 2.4% in the euro area and to 2.9% in the US. Looking ahead, with a subdued outlook for global economic growth, inflation rates are expected to remain moderate. However, higher price dynamics in market services continue to pose upside risks to inflation. The prices of crude oil and natural gas have risen over the past month in response to geopolitical tensions.

Global investor sentiment has been characterised by a high degree of uncertainty since the December interest rate decision. This was mainly driven by geopolitical developments, news on US tariff hikes and expectations for the future interest rate paths of the world’s leading central banks. The Federal Reserve and the European Central Bank reduced interest rates again by 25 basis points in December. Market pricings suggest a divergence between the monetary policies of the two major central banks in 2025, which could lead to increased risk aversion in emerging markets. In the CEE region, the Czech, Polish and Romanian central banks left their policy rates unchanged.

Based on indicators of economic activity, the performance of the Hungarian economy was subdued and had a strongly dual nature in 2024 Q4. In November, the volume of retail sales continued to grow, while industrial production and construction activity declined. With real wage growth remaining strong, consumer confidence improved somewhat after November. The number of employees declined slightly but remains high by historical standards, while the unemployment rate is low.

Consumption, gradually expanding with the rise in real wages, is expected to be the driver of growth looking ahead. Following the sharp decline in the volume of investment in 2024, delayed investments in the corporate sector may start to be partially offset this year with a sustained improvement in demand. Subdued European economic activity is holding back Hungarian exports in the short term. However, ongoing and newly announced, significant capacity-enhancing foreign direct investment projects will stimulate exports from the middle of 2025 and Hungary’s export market share is likely to increase in parallel. The Hungarian economy is expected to gradually return to a balanced growth path.