The Hungarian central bank (MNB) left its base rate on hold on June 24 at 6.50% and, in contrast to the consensus view that the easing cycle will resume this year, Nicholas Farr, an emerging Europe economist with Capital Economics says rates will remain unchanged throughout 2025.

“The decision to leave the base rate on hold today was widely expected by analysts (including ourselves). Interest rates have now been left unchanged for nine consecutive months,” Capital Economics said. “ Policymakers have offered little sign recently that they are close to cutting interest rates.”

Hungary has one of the highest inflation rates in the EU with the headline rate running at 4.4% y/y in May leaving little room for rate cuts for the meantime.

Inflation is expected to remain above the 4% upper bound of the central bank’s target range for the rest of this year, which will limit policymakers’ room to make cuts to boost the struggling economy.

“Our forecasts assume that the current geopolitical risk premium in oil prices continues to dissipate over the coming months, but the MNB’s post-meeting communications will probably highlight upside risks to the inflation outlook from tensions in the Middle East,” Capital Economics said.

The re-acceleration in Hungarian wage growth in April (to 9.8% y/y) will also be a concern for the central bank and is likely to be reflected in a continued hawkish tone from policymakers.

“Overall, we remain comfortable with our forecast for the policy to remain on hold at 6.50% this year. The consensus view is for a 25bp interest rate cut by end-year, while some analysts expect 50bp worth of easing, says Farr.