Hungary's Monetary Council left the base rate on hold at 6.5% for the sixth straight month on 25 March at the first rate-setting meeting under the new MNB leadership in line with the consensus. Policymakers discussed no other option and the decision was unanimous, Governor Mihaly Varga said later at a press conference.

With Hungary's inflation outlook deteriorating and global economic uncertainties persisting, the MNB under the new leadership appears committed to maintaining its tight policy stance.

Varga's comments came after the MNB's new updated economic forecast points to a deteriorating economic outlook.

The MNB downgraded its GDP growth forecast for 2025 to 1.9-2.9%, from 2.6-3.6% in the last report three months earlier, but expects a rebound next year, with growth projected at 3.7-4.7%, up 0.2 percentage points.

While government efforts to cap retail food price margins have helped stabilise consumer prices, uncertainty remains over whether retailers will offset lost revenues by raising prices elsewhere, according to Varga. The cap on retailers' price margins is expected to reduce inflation by 0.8 percentage points in April-May, he added.

The disinflationary trend that began in 2024 has stalled globally, he noted, citing external risks such as tariffs and commodity price volatility as additional upside risks. Inflation will remain above the central bank's 4% tolerance band this year and is expected to reach the 3% target by the end of 2026.

The persistence of underlying inflationary pressures, particularly in services, suggests that any disinflationary trends could unfold more slowly than previously anticipated, according to Varga.

The MNB raised its inflation target to 4.5-5.1% for 2025, up from 3.3-4.1% in the December report. The central bank projects inflation to slow to 2.9-3.9% for 2026, compared to the December estimate of 2.5-3.5% and for 2027, it left its forecast unchanged at 2.5-3.5%. The central bank will release the detailed version of the inflation report on Thursday, March 27. 

Varga also sent a hawkish signal to the markets, indicating the central bank would be prepared to intervene if market conditions required, reinforcing expectations that Hungary's real interest rate environment will remain positive in the near term.

The MNB signalled a potential tightening of liquidity conditions, with up to HUF3 trillion (€7.5bn) of excess liquidity in the banking system expected to be absorbed. This could allow for selective balance-sheet interventions, such as corporate lending support or government bond purchases.

Market expectations for policy easing have been tempered by the central bank's cautious rhetoric. Analysts now anticipate that the MNB will hold rates steady for an extended period, with the first potential rate cut unlikely to come before late 2025. Even then, a potential easing would depend on a significant shift in global monetary conditions, particularly potential rate cuts by the US Federal Reserve.

MBH Bank projects the base to drop to 6.25% by end-2025 and 5.25% a year later. Analysts expect GDP to rise from 2.6% in 2025 to 4.3% in 2026 and inflation to decelerate from 5.1% to 3.8% in the same period.

The forint weakened slightly following the decision, with investors interpreting the central bank's tone as less hawkish than anticipated, but as ING Bank senior analyst Peter Virovacz commented, these market expectations of the possibility of future rate hikes were exaggerated.

The forint has still gained more than 3% from its yearly lows in mid-January, trading below 400 against the euro, which is 16 units lower than two months ago.

Fielding questions, Varga confirmed that the MNB is reviewing the activities of central bank foundations following a report by the State Audit Office, which found serious irregularities under the previous leadership.

Varga did not comment on whether he holds former governor Gyorgy Matolcsy responsible for the loss of hundreds of billions in MNB funds. On Tuesday, police launched a criminal proceeding in the case.