By Gergely Szakacs and Krisztina Than
BUDAPEST (Reuters) -Hungary’s central bank left its base rate steady at the European Union’s joint-highest 6.5% level on Tuesday for the eleventh successive month, as expected, and said tight policy was needed with inflation on track to exceed its tolerance range all year.
All 21 analysts surveyed by Reuters between August 18 and 22 projected that the National Bank of Hungary would leave its base rate unchanged. The median projection still sees a 25-basis-point rate cut by the end of 2025, although economists are divided over the room for policy easing.
Inflation ran at an annual 4.3% in July, above analyst forecasts, driven by food, services and household energy prices.
“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.
“Given buoyant consumption, volatile commodity prices and strong wage dynamics, price stability can be achieved in a sustainable manner by ensuring tight monetary conditions.”
At 1318 GMT, the forint, which fell to a two-week low against the euro ahead of the meeting, traded at 397 versus the euro, a touch weaker than 369.8 just after the rate announcement.
Hungary’s inflation persists despite Prime Minister Viktor Orban’s government imposing controls on food prices and forcing banks, telecoms companies and insurers to forego planned fee increases ahead of an election next year.
The central bank has also warned that several measures Orban’s government has launched in the run-up to the vote, such as hikes in family benefits or subsidised loans for homebuyers, could start widening the budget deficit from next year.
“We think rates will remain unchanged throughout 2025 and that monetary loosening ahead of the election will be limited,” Capital Economics analyst Nicholas Farr said, adding that a removal of price caps raised the risk of an inflation rebound.
Governor Mihaly Varga told a news conference that the measures have curbed inflation by 1.5 percentage points. The bank expects to reach its 3% inflation target only in early 2027. It will issue a forecast update in September.
The central bank of neighbouring Romania, whose main rate also stands at 6.5%, has ruled out rate cuts this year despite a sharp slowdown in the economy after government moves to rein in the bloc’s highest budget gap triggered a surge in inflation.
(Reporting by Gergely Szakacs; Editing by Ros Russell)
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