Unchanged policy message HUF-supportive – Commerzbank

Hungary’s National Bank (MNB) maintained its base rate at 6.50% yesterday, as had been widely anticipated, defying government pressure for monetary easing. This marked the thirteenth consecutive month of unchanged interest rate, keeping Hungary’s borrowing costs the highest in the EU, alongside Romania’s, Commerzbank’s FX analyst Tatha Ghose notes.

Hungary’s central bank resists pressure for rate cuts

“Governor Mihály Varga stressed that the central bank’s monetary policy guidance is not changing, confirming our assessment that the MPC will not move towards rate cuts anytime soon. Varga expressed commitment towards a stable forint which, in itself, curbs inflation. He re-affirmed the need for a ‘careful and patient approach to monetary policy’, with interest rates exceeding inflation to produce a positive real interest rate.”

“Varga noted that without government price caps, inflation would be 1.5pp higher right now. He anticipates meeting the 3% inflation goal sustainably by early 2027. The MNB’s projections depict inflation remaining near the upper bound of the target even through 2026, with the 2026 inflation forecast revised up to 3.8% from 3.7%. Hence, the argument for maintaining high interest rates is self-evident.”

“While there have been sporadic remarks by PM Viktor Orban that Hungary’s interest rate level is high and by minister Matron Nagy arguing for lower interest rates, we do not sense genuine hostility between them and MNB in the manner which existed towards the end of Gyorgy Matolcsy’s term. Hence, the probability that something concrete might change suddenly and the specter of political interference in monetary policy would overwhelm markets appears relatively low. MNB’s steadfast hawkish stance and Varga’s sober messaging are expected to continue supporting the forint exchange rate.”