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Hungary’s central bank kept its benchmark interest rate unchanged at 6.5%, extending its policy pause for a fifteenth consecutive month ahead of the release of new inflation and growth forecasts. The decision, fully in line with market expectations, leaves Hungary with one of the highest policy rates in the European Union, on par with Romania.
Inflation returns to target range
Price pressures in Hungary have eased notably. Headline inflation moved back within the central bank’s 2% to 4% tolerance band in November for the first time in a year, helped by a stronger forint. Governor Mihaly Varga has indicated that average inflation next year could fall to between 3.4% and 3.6%, below the bank’s previous projection.
Forint stability shapes policy stance
Maintaining a high interest rate remains central to protecting the forint. The currency has appreciated by nearly 7% against the euro so far this year, making it one of the strongest performers among major and emerging currencies. Policymakers have signaled that premature rate cuts could undermine currency stability, a risk they are keen to avoid.
Inflation risks persist
Despite recent improvements, inflation risks remain elevated. These include a planned double-digit increase in the minimum wage and higher government spending ahead of parliamentary elections scheduled for April. The central bank estimates that without temporary profit curbs introduced before the vote, headline inflation would be around 1.5 percentage points higher.
Markets weigh timing of easing
Money-market traders have cautiously increased bets on eventual rate cuts, though they are not fully pricing in even a modest reduction before the election. Some analysts expect the first move as early as February if the forint remains stable, while others see a more gradual and delayed easing cycle.
As reported by International Investment experts, Hungary’s monetary strategy underscores a strong commitment to currency stability amid political and inflationary uncertainties. Any shift toward easing is likely to be gradual and heavily dependent on the forint’s resilience and post-election fiscal signals.