(Bloomberg) -- Hungary’s central bank kept its key interest rate unchanged after the forint’s recent drop eliminated the room for continued monetary easing.
The currency gained against the euro after the National Bank of Hungary left its benchmark rate at 6.5% on Tuesday, matching all forecasts in a Bloomberg survey of economists. That was the only option policymakers discussed, Deputy Governor Csaba Kandracs told reporters after the meeting.
Hungary resumed easing last month, cutting the key rate by a quarter-point to a level that’s still tied with Romania for the highest benchmark in the bloc. The move followed an easing cycle spanning more than a year, with only a brief pause in August.
A slide in the central European nation’s currency prompted Deputy Governor Barnabas Virag to take a more hawkish tone last week, saying the rate may be maintained for a “sustained period” as headwinds from geopolitics and changed US rate expectations limit Hungary’s monetary-easing room and raise inflationary pressures.
Data-Driven
“We’re not at all afraid to maintain the current base interest level for an extended period,” Kandracs said. He said a “careful and patient approach” was warranted with rate decisions taken in a “cautious and data-driven manner.”
A forecast uptick in inflation in the rest of this year, as well as the fallout from recent steps by Prime Minister Viktor Orban’s administration to stimulate sluggish economic growth, have also complicated the central bank’s job.
“We can’t sit back” when it comes to inflation, Kandracs said, pointing in particular to policymakers’ concern about elevated core price-growth, which strips out volatile food and energy cost swings.
The forint gained as much as 0.4% against the euro after the rate decision, crossing briefly below the 400 level. It fell to an 18-month low earlier this month, prompting money-market traders to price out further rate cuts this year.
--With assistance from Maxim Edwards.
(Updates with deputy governor’s comments and central bank statement.)
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