The Monetary Council of the Hungarian National Bank (MNB) left the base rate on hold at 6.5% while keeping the interest rate corridor unchanged at a monthly policy meeting on May 27, fully in line with projections. The decision marks the eighth consecutive month without a change to key rates, reflecting MNB’s continued caution amid persistent inflationary pressures and geopolitical uncertainties.

The central bank’s forward guidance contained no surprise, saying risks surrounding the inflation environment, trade and geopolitical tensions warrant a cautious and patient monetary policy.

At a press conference after the meeting, central bank governor Mihaly Vargas said the base rate could remain at the current level for "an extended period".

He warned that "the fight against inflation is not over," citing persistent upside risks to the inflation outlook.

Despite a recent improvement in global market sentiment and a decline in food prices, core inflationary pressures remain elevated, he added.

While headline inflation eased to 4.2% in April, and core inflation declined to 5.0%, risks remain tilted to the upside, particularly due to high services price growth, volatile global food prices and the inflationary impact of rising tariffs.

Varga noted inflation will likely hover near the upper bound of its 4% tolerance band in the coming months, and outlooks continue to be surrounded by predominantly upward risks.

The MNB will revise its growth and inflation forecasts at the end of June in the latest inflation report.

Addressing the global environment, Varga said sentiment on international financial markets had improved as the first trade agreements reached amid the tariffs war were more favourable than expected. Expectations for the interest rate paths of big central banks have shifted upwards amid the volatile environment, he said.

Policymakers acknowledged the recent softening in labour market tightness and wage growth, noting that the number of vacancies relative to unemployment has dropped to its lowest level since 2016.

Varga stressed the need to anchor inflationary expectations and said the MNB’s can contribute to this goal with positive real interest rates.  Policymakers said maintaining tight monetary conditions is warranted and that restrictive policy will remain in place in the foreseeable future.

Analysts also foresee limited room for monetary easing despite subdued economic growth, as the inflationary outlook remains elevated. Most economists queried by Portfolio expect modest easing in H2, with the median forecast of a 25bps cuts. Economists at Equilor expect the MNB to hold fire on rate cuts until late 2025, forecasting a 6.25% base rate by year-end and 5.25% by end-2026.

The EUR/HUF rate was little changed, trading lightly above 404.