Hungary Holds Interest Rates Steady as Forint Weakness Limits Easing Room

The National Bank of Hungary (MNB) kept its key interest rate unchanged at 6.5% on Tuesday, marking a pause in its easing cycle as the forint’s recent weakness has eliminated room for further monetary loosening, Bloomberg reports.

The decision, which matched all forecasts in a Bloomberg survey of economists, saw the forint strengthen against the euro, trading below the 400 level. Earlier this month, the currency had hit an 18-month low, prompting money-market traders to price out any further rate cuts for the rest of the year.

The MNB resumed easing last month, cutting the key rate by a quarter-point to a level that remains tied with Romania for the highest benchmark in the bloc. This move followed an easing cycle that spanned over a year, interrupted only by a brief pause in August.

However, recent headwinds from geopolitics and altered US rate expectations have created a challenging environment for the Hungarian central bank, leading Deputy Governor Barnabas Virag to adopt a more hawkish stance last week. He stated that the current rate may be maintained for a “sustained period,” emphasizing the limited scope for further easing.

Adding to the complexities, the MNB faces a forecast uptick in inflation for the remainder of the year, alongside the repercussions of recent measures by Prime Minister Viktor Orban’s administration to stimulate sluggish economic growth.

The MNB will issue a statement and hold a press briefing at 3 p.m. in Budapest to further explain its decision to hold rates steady.