(Bloomberg) -- Hungary’s central bank said there may be room for further “cautious” interest-rate cuts after pausing monetary easing for the first time in more than a year.
Policymakers in Budapest left the benchmark rate at 6.75% on Tuesday following 15 consecutive cuts. The decision matched the forecasts of most economists in a Bloomberg survey and left the country’s borrowing costs at the highest level in the European Union.
Rate setters signaled the pause was temporary and that they were looking for openings to ease monetary policy further. Expected rate cuts next month by the US Federal Reserve and the European Central Bank, as well as local consumer-price developments, risk assessment and economic confidence will determine the timing of the next move.
“There may be scope for cautiously lowering interest rates further in the coming period, depending on the expected interest rate policies of the world’s leading central banks, as well as developments in the domestic inflation outlook and changes in Hungary’s risk perception,” the rate-setting Monetary Council said in a statement.
The forint strengthened 0.3% after the decision, trading at 393.3 against the euro at 3:38 p.m. in Budapest. It’s still down 2.5% versus the common currency since the start of the year. The forint kept its gains after the guidance on further rate cuts, suggesting those were largely priced in.
The National Bank of Hungary on Tuesday erred on the side of caution after inflation quickened more than its own forecast in July and breached the 4% upper bound of its tolerance range. Meanwhile, the forint, a key factor for monetary settings due to its impact on inflation, has underperformed regional peers since last month’s rate cut.
Inflation may return to within the 1 percentage-point band around the 3% target in the coming months, Deputy Governor Barnabas Virag told reporters at a briefing. At the same time, he said policymakers will closely monitor August data on potential stickiness in price growth, including in core inflation that strips out volatile food and energy items.
The Monetary Council will weigh a 25 basis-point cut or no change to the key rate at each of its meetings this year, with room for one or two more quarter-point cuts by the end of 2024, Virag said.
Economy Minister Marton Nagy, a potential successor to Governor Gyorgy Matolcsy after his term expires early next year, last week lashed out at the central bank for its approach. He compared rate-setters to “cyclops” for a perceived singular focus on inflation at a time of lackluster economic growth. Nagy has in the past called for looser monetary policy.
The central bank has been clear that its priority is achieving price stability. Policymakers have progressively reduced the size of the cuts this year from a full percentage point to 25 basis points in the past two months. The key rate peaked at 18% last year.
(Recasts with central bank guidance throughout.)
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