After three reductions in a row, the National Bank of Hungary left borrowing costs unchanged at 5.5% on Tuesday. Governor Mihaly Varga is set to brief reporters at 3 p.m. in Budapest, alongside a statement and new projections for inflation and economic growth.
Traders had already penciled in a pause given global crosswinds, including pricier oil tied to the US-Iran war and continued tightening by the Federal Reserve and the European Central Bank. The forint scarcely moved and remained at a two-week high versus the euro.
Investors are zeroing in on whether the bank will lower its 3% inflation objective, which has a 1 percentage point tolerance band on either side and is the highest in the EU. Bloomberg reports that officials could shift the target to 2.5% as early as this month, ahead of the anticipated formal presentation of a euro-adoption blueprint by Prime Minister Peter Magyar's government. The ECB aims for 2%, and Varga has indicated Hungary may move in stages to bring its target down.
Local price pressures have cooled, helped by a stronger currency that is making imports cheaper. Even with energy prices climbing and global sovereign yields rising, August's headline inflation came in at 1.3%. That breathing room let the central bank deliver a summer of easing, cutting a total of 75 basis points since June.
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Still, Hungary's 5.5% benchmark sits well above the 3.75% policy rates in the Czech Republic and Poland, where inflation is running hotter than in Hungary. For your wallet, the mix of a steady policy rate, a firmer forint, and a potential target tweak could shape where borrowing costs and everyday prices head next.
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