(Bloomberg) -- Hungary left its key interest rate unchanged for a fifth month after accelerating inflation bolstered policymakers’ bias against monetary easing in the months ahead.
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The National Bank of Hungary kept the benchmark at 6.5% on Tuesday at the last policy meeting that was chaired by Governor Gyorgy Matolcsy. The decision matched all 23 estimates in a Bloomberg survey.
Annual price growth accelerated to a 13-month high of 5.5% in January, underscoring concerns that inflation expectations may stabilize at higher levels. The central bank, which sees inflation gradually slowing this year, has already pushed back the target date for sustainably achieving its 3% goal to next year from this year.
The bank will raise the top end of its inflation forecast for this year from 4.1% when it publishes new estimates in March, Deputy Governor Barnabas Virag told reporters after the decision.
“A cautious, patient, stability-oriented policy continues to be warranted,” Virag said. The rate decision on Tuesday was unanimous, he added.
The forint, which has rallied to a four-month high in recent weeks, strengthened 0.2% to 400.3 per euro after Virag’s comments.
Inflation may peak in the first quarter but it was no longer clear which month, Virag said. The latest price data was a “warning sign,” particularly services inflation at close to an annual 9%, he said.
Limited Room
The gloomier picture is likely to limit former Finance Minister Mihaly Varga’s room for maneuver once he takes over the central bank on March 4. He’s said he’ll prioritize price stability during his six-year term, a view echoed by Andrea Mager on Monday, who’ll also join the rate-setting body, succeeding Gyula Pleschinger.
The central bank won’t have room to cut the benchmark this year, while a rate hike is also “unthinkable,” Pleschinger said in a Bloomberg interview on Feb. 17. Virag said he respected the opinion but added that fast-paced global developments mean it’s better not to rule out any option.
Traders are pricing in just one quarter-point rate cut at the end of this year, based on forward rate agreements. Hungary’s key rate is currently tied with Romania’s for the highest in the European Union.
Matolcsy’s 12-year tenure was initially marked by the conversion of mostly Swiss-franc denominated foreign-currency mortgages into forint as well as aggressive monetary easing, which also included using the central bank’s balance sheet to subsidize corporate loans.