Hungary's Central Bank Maintains 6.25% Rate, Citing Global and Domestic Risks
Central Bank Decision and Economic Context
Interest Rate Decision and Market Reactions
BUDAPEST, April 28 (Reuters) - Hungary's central bank kept its base interest rate on hold at 6.25% on Tuesday as widely expected, with concerns over global energy prices and domestic fiscal risks limiting the bank's room for manoeuvre despite gains in the forint.
The unresolved conflict in the Middle East and the resulting volatility in global markets have put inflation worries back on the table despite an appreciation in the forint following Hungary's parliamentary election on April 12, which ended nationalist Prime Minister Viktor Orban's 16-year rule.
Government Transition and Policy Shifts
The incoming government of Peter Magyar's centre-right TISZA party has placed euro adoption back on the agenda, and it plans to take action to unlock billions of euros in frozen EU funds. These plans have boosted the forint and driven bond yields lower.
Regional Central Bank Caution
But central banks across Central Europe have been cautious, mindful of various global risks.
Expert Analysis and Market Data
Goldman Sachs Commentary
"In Hungary, we expect the NBH to keep its policy rate on hold at 6.25%, in line with consensus, due to the uncertain external environment and energy price outlook, which is likely to supersede dovish domestic developments in the past month (a stronger HUF and the downside surprise to March CPI)," Goldman Sachs said in a note ahead of the rate decision.
Forint Performance
Hungary's forint EURHUF= traded at 365.50 to the euro just after the decision, a shade firmer than levels around 365.65 before the announcement.
Recent Monetary Policy Developments
Previous Rate Changes
In February the Hungarian central bank delivered its first 25-basis-point rate cut since late 2024, aided by a slowdown in the rate of annual price growth to 2.1% at the start of the year, below its 3% policy target. Then in March the bank kept rates on hold.
Governor's Outlook
Governor Mihaly Varga said in March that the bank's fresh economic projections were "surrounded by higher-than-usual uncertainty".
Analyst Expectations and Forecasts
Reuters Poll Results
In the Reuters poll last week, 14 out of 15 analysts projected no change from 6.25% on Tuesday. One analyst still expected a 25-bps rate cut to 6%.
Inflation and Rate Forecasts
Survey Projections
The median survey forecast projected just 25 bps worth of rate easing to 6% by the end of the year, with inflation seen climbing to 4.4% by December, outside the bank's 2% to 4% tolerance band.
(Reporting by Krisztina Than and Gergely Szakacs; Editing by Hugh Lawson)
