Hungary central bank holds key rate steady amid inflation concerns

Investing.com — The National Bank of Hungary has maintained its key interest rate at 6.5% for a third consecutive month, amid rising inflation and a weak national currency. This rate, one of the highest in the European Union, is equal to that of Romania, making them the two countries with the highest key rates in the EU.

Inflation in Hungary has been accelerating, with the headline price growth increasing to an annual 3.7% in November from 3.2% in October, largely driven by a 7% surge in services costs. Policymakers have expressed concern that inflation expectations may remain high following the country’s inflation peaking at over 25% at the start of the previous year, the highest within the EU.

The Hungarian forint, the country’s currency, has been under significant pressure, nearing a two-year low against the euro. Over the course of the year, the forint has depreciated more than 6% against the euro and about 11% against the dollar. This depreciation led the central bank to halt a short-lived attempt at monetary easing in September, despite inflation being within policymakers’ acceptable range.

The bank’s decision to keep the rate steady comes in spite of calls for easing from Economy Minister Marton Nagy, who suggested that a lower rate could help boost the economy out of a recession. The central bank has pointed to geopolitical tensions, market volatility, and persistent inflation risks as reasons for maintaining the current rate.

The bank’s monetary policy could potentially shift in the future, as Prime Minister Viktor Orban has chosen Finance Minister Mihaly Varga to replace Governor Gyorgy Matolcsy in March. During a parliamentary hearing, Varga stated that he would prioritize the central bank’s 3% inflation target and a stable, predictable exchange rate.

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