Press release on the Monetary Council meeting of 29 April 2025

29 April 2025

At its meeting on 29 April 2025, the Monetary Council reviewed the latest economic and financial developments and decided on the following structure of central bank interest rates with effect from 30 April 2025:

The primary objective of the Magyar Nemzeti Bank (MNB) is to achieve and maintain price stability. Without prejudice to its primary objective, the Magyar Nemzeti Bank preserves financial stability and supports the Government’s economic policy, as well as its policy on environmental sustainability.

Intensifying trade policy tensions, in addition to prolonged geopolitical conflicts, are creating a generally uncertain global economic environment. The impacts of constantly changing tariff policy plans on the real economy vary by region. In the US, the risk of a recession has increased, while in the EU, the announced programmes for expenditure hikes may dampen the restraining effects of slowing international trade on economic growth looking ahead.

In the US, trade policy tensions are increasing inflation expectations, while in Europe the impact on prices is expected to be more muted for the time being. Against the backdrop of a deteriorating economic outlook, energy and commodity prices have fallen significantly, which points to lower inflation globally. Looking ahead, the upward effect of tariff announcements on inflation expectations, further rises in global food prices, and continued high price dynamics in market services pose upside risks to inflation.

There has been a significant increase in uncertainty in financial markets as well. Following the tariff hike announcements, equity indices fell sharply, while safe haven asset prices rose. US long-term yields were characterised by heightened volatility and European long-term yields declined substantially. The euro appreciated significantly against the US dollar. The European Central Bank lowered interest rates by another 25 basis points in April, and expectations of further interest rate cuts have intensified. The Federal Reserve’s expected interest rate path also shifted downward. In the CEE region, the Czech, Polish and Romanian central banks left their policy rates unchanged over the past month.

The volume of domestic retail sales rose in February, while industrial production and construction activity fell compared to a year earlier. Real wage growth continued to be strong, but consumer confidence remained subdued. The number of employees is high by historical standards. Labour market tightness has eased in recent quarters.

Consumption is expected to grow further in 2025, alongside rising real wages and tax cuts by the Government. Economic growth is expected to pick up in an increasingly balanced structure over the forecast horizon as the large capacity-enhancing industrial investment projects start production. However, global rises in tariffs could lead to subdued export performance, and rising uncertainty could result in the postponement of certain investment projects, both of which could act as a drag on domestic economic activity.

Trends in domestic lending continue to have a dual nature: the household credit market picked up further in February, while corporate credit demand remained low. The annual growth rate of household loans may continue to increase in 2025. The growth rate of corporate lending is expected to rise from 2025 H2.

In March 2025, inflation fell to 4.7 percent and core inflation to 5.7 percent. Most product groups contributed to the decline in the annualised consumer price index. The extent of repricings in March was above the historical average in the case of tradables and market services and below in the case of food. Price expectations of both households and firms are at high levels; and moderating these is key to achieving the inflation target.

The inflation rate is expected to fall further in April and then to remain near the upper bound of the central bank tolerance band in the coming months. The fall in world oil prices quickly feed through to fuel prices. In the case of food, profit margin caps introduced by the authorities in the affected product groups and, in the case of services, voluntary pricing commitments by telecom service providers and banks, are expected to moderate inflation.

Risks to the path of the inflation projection have increased due to the different timing and opposite direction of the effects of tariff announcements. Falling global commodity prices point to lower inflation in the short term. However, upside risks to inflation could intensify in the medium term in the event of increases in tariff rates. Rising uncertainty in international financial markets also increases risk aversion towards Hungarian assets, which also poses a risk of higher inflation.

The current account balance showed a significant surplus of EUR 750 million in February. With an upswing in domestic demand, the current account surplus is expected to temporarily decline slightly in 2025; however, the external position is expected to remain in a persistently large surplus in the coming years.

In the MNB’s projection, the fiscal deficit may decrease further in 2025, while the primary balance excluding interest expenditures is likely to be at near-equilibrium levels over the entire forecast horizon. The debt ratio is expected to fall in the coming years, even with the revised deficit targets.

In the current macroeconomic environment, the Bank can make the most effective contribution to the easing of economic agents’ increased precaution and to sustainable economic growth by achieving price stability and maintaining financial market stability. Restrictive monetary policy contributes to the maintenance of financial market stability, the anchoring of inflation expectations consistently with the central bank target and, as a result, to the achievement of the inflation target in a sustainable manner by ensuring positive real interest rates.

In line with the stability-oriented approach, the Monetary Council left the base rate unchanged at 6.50 percent at today’s meeting. The O/N deposit rate and the O/N lending rate also remained unchanged, at 5.50 percent and 7.50 percent, respectively.

The Monetary Council is committed to the achievement of the inflation target in a sustainable manner. A careful and patient approach to monetary policy remains necessary due to risks to the inflation environment as well as trade policy and geopolitical tensions. In the Council’s assessment, maintaining tight monetary conditions is warranted.

The abridged minutes of today’s Council meeting will be published at 2 p.m. on 14 May 2025.

MAGYAR NEMZETI BANK
Monetary Council