Today's Monetary Council went just as expected

HUNGARY - In Brief 25 Mar 2025 by Istvan Racz

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The MNB base rate was left at 6.5% and the interest rate corridor remained at 5.5% to 7.5%. At the press conference held after the meeting by Mr. Varga, the new governor, it has been stressed that the base rate may be left unchanged for a longer period, without any specification on how long that period may prove to be. In the Q1 inflation report, the MNB's forecast for this year's average CPI-inflation was raised to 4.5-5.1%, from the Q4 forecast of 3.3-4.1%. At the same time, the forecast on real GDP growth was lowered to 1.9-2.9%, from Q4's 2.6-3.6%. The MNB now expects headline inflation will return into the target range (below 4%) only in 2026. The Council identified significant upward risks associated with inflation prospects, trade policy matters and geopolitical developments. Mr. Varga stressed that February's 5.6% yoy headline inflation figure was probably the highest monthly number to be seen this year. He saw a -0.8%-point impact on the CPI from the government's newly introduced administrative restriction on food prices. In our view, this largely corresponds to a fresh government announcement that food prices affected by the measure fell by 17.7% between Monday last week (the day of the measure's introduction) and this morning. The latter itself would mean a 1.1% reduction of the CPI, but there are also compensatory price increases being simultaneously implemented on goods not affected by the restriction. In sum, we did not see signs of any change made to the MNB's most recent policy line today. On this occasion, Mr. Varga refrained from making detailed comments on the ongoing case of the MNB's PADME foundation. The latter is about some HUF407bn of public fun...