(Bloomberg) -- Hungary’s central bank said it had no room to cut interest rates after the inflation outlook deteriorated and emerging-market volatility kept the forint vulnerable.
The National Bank of Hungary maintained the benchmark at 6.5% for a third month on Tuesday, matching the forecast of all 22 economists in a Bloomberg survey. The key rate is tied with Romania for the highest in the European Union.
The central bank said Hungary would sustainably meet its 3% inflation goal in 2026 versus a forecast of 2025 earlier, citing risk aversion affecting emerging markets as well as heightened price pressures locally.
Policymakers are ready to keep the key rate unchanged for a “sustained period” if risks warrant that, Deputy Governor Barnabas Virag said.
“Maintaining the key interest rate at 6.5% is an important pillar of monetary policy,” Virag told reporters at a briefing.
The forint was little changed after the rate decision. Its plunge this year forced the central bank to abandon a brief attempt at restarting monetary easing in September, despite inflation being within policymakers’ tolerance range.
Price Growth
The Hungarian currency has dropped more than more than 6% against the euro and almost 11% against the dollar this year.
Investors have been on the lookout for potential shifts in monetary policy, especially after Prime Minister Viktor Orban tapped Finance Minister Mihaly Varga to succeed Governor Gyorgy Matolcsy from March.
At a parliamentary hearing on Monday, Varga said he’d prioritize the central bank’s 3% inflation target, as well as a stable and predictable exchange rate.
Headline price growth quickened to an annual 3.7% in November from 3.2% in October, driven by a 7% increase in services costs.
The risk is that inflation expectations may get stuck at a high level after Hungary’s EU-topping inflation peaked at more than 25% at the start of last year.
Virag said the central bank continued to expect disinflation to resume early next year, even as the inflation goal is now seen to be met sustainably only in 2026.
The central bank has resisted calls from Economy Minister Marton Nagy for monetary easing to boost the economy from a recession. The cabinet has also pointed to a widening premium compared with Western central banks, which have doubled down on rate cuts to shore up ailing economies.
--With assistance from Harumi Ichikura.
(Recasts with rate outlook.)
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