Hungary's Central Bank Holds Interest Rates Steady Amid Inflation Concerns

Investing.com -- The National Bank of Hungary has kept its key interest rate at 6.5% for the third consecutive month in response to rising inflation and a weakening national currency. This rate is one of the highest in the European Union, matching that of Romania, making the two countries among those with the highest key interest rates in the EU.

Inflation in Hungary continues to accelerate; the primary price increase rose from 3.2% in October to an annual 3.7% in November, mainly due to a 7% increase in service costs. Policymakers have expressed concerns that inflation expectations may remain high after the country’s inflation exceeded 25%, the highest level in the EU, earlier last year.

The Hungarian currency, the forint, is under significant pressure and is approaching a two-year low against the Euro. Throughout the year, the forint has depreciated by over 6% against the Euro and approximately 11% against the dollar. This depreciation has led to the central bank halting its attempt at a short-term monetary easing in September, despite inflation remaining within policymakers' acceptable range.

The decision to maintain the interest rate came despite calls for easing from Economy Minister Marton Nagy, who suggested it could help pull the economy out of a recession. The central bank cited geopolitical tensions, market volatility, and persistent inflation risks as reasons for retaining the current rate.

The bank’s monetary policy may potentially change in the future, as Prime Minister Viktor Orban appointed Finance Minister Mihaly Varga to replace President Gyorgy Matolcsy in March. Varga has stated during a parliamentary session that the central bank will prioritize its 3% inflation target and a stable, predictable exchange rate.