Central Bank leaves rates unchanged in November

Monetary policy easing on hold: At its meeting on 19 November, the Monetary Council decided to leave interest rates unchanged, with the base rate at 6.50%, the overnight deposit rate at 5.50% and the overnight collateralised lending rate at 7.50%. The decision was in line with market expectations.

Rising inflation and financial market instability behind November’s hold: The key domestic factors influencing the Central Bank's decision included inflation, which rose to 3.2% in October, driven by accelerating food and fuel prices that brought it closer to the ceiling of the Central Bank’s 2.0–4.0% target range. Moreover, financial market instability prevented an interest rate cut. Meanwhile, a weaker-than-expected economy—GDP declined by 0.8% annually in Q3—was not sufficient motivation for a cut, as the Bank remained laser-focused on controlling price pressures and inflation expectations.

Rate cuts to resume in 2025: In its forward guidance, the Bank struck a hawkish tone, stating that “geopolitical tensions, volatile financial market developments and the risks to the outlook for inflation warrant further pause in cutting interest rates”. The majority of our panelists expect the Central Bank to stand pat by the end of 2024 and cut interest rates by about 150 basis points in 2025. Unexpected rises in inflation and wage growth, as well as a weaker-than-expected forint, are upside risks to the base rate, while a prolonged recession is a downside risk.

Panelist insight: EIU analysts commented on the outlook: “We expect the NBH to keep rates on hold for the rest of the year, especially in light of recent forint weakness. With inflation forecast to remain at the upper end of the NBH's target range for much of 2025, we expect the central bank to revert to 25-basis-point cuts on a quarterly basis in 2025-27. The base rate will fall to 3.25% by early 2028. In the meantime, borrowing costs for households and non-financial companies remain among the highest by far in the region and will continue to curb capital investment in the short term.”

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