Central Bank leaves rates unchanged in December

Latest bank decision: At its meeting on 17 December, the Central Bank decided to leave all interest rates unchanged, with the key policy rate remaining at 6.50% as had been largely expected by markets.

Monetary policy drivers: Key domestic factors influencing the decision included rising inflation, which reached 3.7% in November, plus emerging-market volatility hurting the forint. The Central Bank noted volatile global investor sentiment, influenced by expectations regarding the future interest rate paths of the world's leading central banks, global trade disputes and geopolitical tensions. Meanwhile, the economic panorama weakened recently, with GDP contracting 0.8% year-on-year in Q3.

Policy outlook: The Bank held the view that the current policy rate level was consistent with stability in prices and financial markets, as well as with economic growth. Additionally, it stated that “geopolitical tensions, volatile financial market developments and the risks to the outlook for inflation warrant further pause in cutting interest rates”. Our Consensus is for almost 100 basis points of rate cuts in 2025. Upside risks include softer-than-expected policy loosening in the U.S. and a weaker-than-expected forint, while downside risks include prolonged economic malaise domestically.

Panelist insight: ING analysts said: “If the European Central Bank accelerates its rate-cutting cycle (probably in the first half of 2025) and the regional central banks also start easing in the second half of the year, the new Monetary Council could take action as early as 2Q25 (probably in June) without endangering the forint as a whole. We think a total of 75bp of rate cuts next year is realistic, which would be roughly in line with the average size of expected easing cycles (between 75bp and 100bp) in the region.”

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