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(Bloomberg) — Hungary kept its key interest rate unchanged as policymakers looking to start monetary easing seek evidence that slowing inflation can be sustained.
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The National Bank of Hungary kept its benchmark interest rate at 6.5% on Tuesday for a 16th month, tied with Romania for the highest level in the European Union. That matched the estimate of all but one of 23 economists in a Bloomberg survey. A briefing and statement will follow at 3 p.m. in Budapest.
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The central bank changed its monetary-policy guidance last month from ruling out rate cuts to making decisions meeting by meeting based on incoming economic data. The bank said its projection showed inflation within the 1 percentage point tolerance band around its 3% target over the monetary horizon.
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While inflation slowed further in December, closing in on the central bank’s target, Deputy Governor Zoltan Kurali on Jan. 14 pointed to “stubborn” services price increases, a key gauge for inflation expectations. At an annual 6.8%, that was more than double the headline data last month. Policymakers need “a lot of conviction” before beginning rate cuts, Kurali said.
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That shifts the focus to February, following the publication of key January inflation data that may show the extent of repricing at the start of the year, especially for services. The statistics office will publish the data on Feb. 12.
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Money market traders expect one or two quarter-point rate cuts in the next three months, with the first one as soon as in February, according to forward rate agreements. Hungary holds parliamentary elections on April 12, with Prime Minister Viktor Orban’s party trailing in most polls after 16 years in power.
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The forint’s appreciation — it’s close to a two-year high against the euro amid an emerging-market rally and dollar weakness — is widening the room for rate cuts by limiting the cost of imported goods, including energy.
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