HU: New Governor Varga emphasized stability-oriented approach

At today's rate-setting meeting, the Monetary Council kept the base rate unchanged at 6.50%. The decision was in line with our expectations and the broad market consensus. The press conference was held by the new Governor, Mihly Varga, who emphasized the stability-oriented approach of the monetary policy.

At the press conference, the new governor stated that this year's inflation path would be higher than previously expected, delaying the achievement of the inflation target. In the Councils assessment, a careful and patient approach, as well as the maintenance of tight monetary conditions, is warranted. The base rate may remain at the current level for a longer period. Restrictive monetary policy sustainably contributes to achieving the inflation target by ensuring positive real interest rates.

The new inflation and GDP forecasts from the MNB were revealed. Annual average inflation is expected to be 4.55.1% in 2025, 2.93.9% in 2026, and 2.53.5% in 2027. As for the growth outlook, the economy is expected to grow by 1.92.9% in 2025, expanding further by 3.74.7% in 2026, and by 2.83.8% in 2027. Compared to the previous (December) projections, inflation forecasts were raised, while GDP forecasts were revised downward. Forecasts for both statistics are still slightly more optimistic than the current market consensus.

The forward guidance of the monetary policy did not change significantly: the Monetary Council is committed to the achievement of the inflation target in a sustainable manner. The inflation path this year is likely to be higher than earlier expected, and achieving the target has been delayed. A careful and patient approach to monetary policy remains necessary due to upside risks to inflation as well as trade policy and geopolitical tensions. In the Councils assessment, the uncertain international environment and the outlook for inflation warrant the maintenance of tight monetary conditions.

The outcome and main messages of todays MPC meeting were practically a non-event. Rates will remain unchanged in the upcoming period. We maintain our view, however, that later in the year, cautious rate reductions (one or two) cannot be excluded, but only if risk assessment factors improve and possible easing steps by major and regional central banks create some more room for the MNB to maneuver.