Hungary: Central Bank leaves rates unchanged in February
Monetary policy pause extended: At its meeting on 25 February, the National Bank of Hungary (NBH) decided to leave all policy rates unchanged for the fifth consecutive meeting, with the base rate remaining at 6.50%. The decision met market expectations.
Inflationary risks dominate Bank’s decision: The key domestic factors influencing the Central Bank’s decision included rising inflation; the latter rose to 5.5% in January (December: 4.6%), exceeding both expectations and the Bank’s 2.0–4.0% target range. The NBH also remained cautious about the impact of tariffs and rising prices for services. It also noted that household inflation expectations remain high. Additionally, the Bank stressed that the risk of higher-than-expected inflation is rising and stated that price pressures could return to target later than previously envisaged. The decision to stand pat was also influenced by strong real wage growth, a slight decline in unemployment, and expectations of economic growth driven by consumption.
Bank remains hawkish, but panel still sees cuts ahead: The NBH’s forward guidance was largely unchanged from last month, with the Bank stating that its monetary policy approach will be affected by “trade policy and geopolitical tensions, upside risks to inflation, as well as to uncertainty surrounding the future interest rate paths of the world’s leading central banks”. The NBH’s hawkish tone could indicate a prolonged pause in monetary easing. That said, our panelists see rate cuts resuming as early as Q2, totaling around 75 basis points by end-2025. Higher-than-expected inflation poses the key upside risk to the policy rate. The Bank will reconvene on 25 March.
Panelist insight: EIU analysts said:
“In the light of forint weakness in 2024 and accelerating inflation in early 2025, the NBH will keep the policy rate on hold at 6.5% in the first half of the year. Beginning in the third quarter of 2025, we expect the central bank to cut its rate by 25 basis points on a quarterly basis in 2025-28, with the base rate falling to 3.25% in the third quarter of 2028. […] With inflation likely to remain higher than the NBH’s target range of 3% (±1 percentage point) for most of 2025, there is a growing risk that monetary loosening may be delayed until 2026.”