(Bloomberg) -- Hungary held its key interest rate for a second month to support the forint after Donald Trump’s victory in the US presidential election triggered one of the steepest currency declines in emerging markets.
The National Bank of Hungary kept the benchmark at 6.5% on Tuesday, matching the forecast of all 21 economists in a Bloomberg survey. That left it tied with Romania for the highest key rate in the European Union.
Geopolitical tensions, market volatility and inflation risks warrant a cautious approach to monetary policy, Deputy Governor Barnabas Virag told reporters at a briefing in Budapest. The central bank is ready to maintain its no-change approach to interest rates for a “sustained period,” he said.
Uncertainty about the Federal Reserve’s interest-rate path and potential tariffs by the incoming Trump administration caused the dollar to surge and emerging-assets like the forint to weaken this month. Hungary is in particular focus because of a strained budget, an ongoing recession and the country’s reliance on the car industry, a potential target in a trade war.
The forint’s plunge pushed the central bank to abandon a brief attempt at restarting monetary easing, despite inflation hovering close to policymakers’ 3% target. The forint has dropped more than 2 against the euro and 7% against the dollar since October, making it the worst-performing European emerging-market currency.
A large majority of the Monetary Council voted in favor of holding interest rates Tuesday, while one member sought a cut, Virag said. Upside risks remain to price-growth, including forint weakness, food-price increases and tax changes, while Hungarians’ inflation expectations are “significantly” above the central bank’s goal, he said.
Investors have pared rate-cut bets and now expect about two quarter-point reductions over the next six months, according to forward rate agreements. They even briefly speculated on hikes in Hungary after Trump’s win sent the forint into a tailspin.
(Updates with guidance in third paragraph, inflation outlook in sixth.)
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