Hungary central bank leaves base rate steady as inflation rebound looms
By Gergely Szakacs
BUDAPEST, Oct 20 (Reuters) - Hungary's central bank kept its base interest rate at 5.5% HUINT=ECI on Tuesday as widely expected, amid upside inflation risks from global energy prices and the government's plans for large wage rises and tax cuts in next year's budget.
The decision was in line with the unanimous forecast of 13 economists in a Reuters poll last week.
At 1202 GMT, the forint , which briefly touched a four-week high against the euro on Monday after Prime Minister Peter Magyar announced a much-lower 2027 deficit target, traded at 364.4 per euro, unchanged from levels before the rate announcement.
The bank paused a string of rate cuts last month when it lowered its inflation target to 2.5% from 3% as Hungary prepares to meet the terms of joining the single European currency, a key electoral pledge by centre-right Magyar, who took power in May.
"The crucial point of interest will be whether or not (Hungary's central bank) will still signal rate cuts as a realistic option for November or December," Commerzbank economist Tatha Ghose said.
"The recovery may still prove uneven, but this is hardly a crisis-like backdrop which demands lower interest rates when underlying inflation is running faster than target."
WAGE HIKES, TAX CUTS, PENSION RISES TO FEED INFLATION
Governor Mihaly Varga will hold a press conference at 1300 GMT, where he could deliver his initial assessment of the 2027 budget, which will target a shortfall of 4.9% of output, well below this year's 7.5% expected rate.
Last month the bank raised its 2027 inflation forecast to 3.1% from a previous 2.3%, well up from the 1.8% average rate expected this year, driven by higher energy prices and an excise tax rise on tobacco products.
Speaking on public radio early on Tuesday, Magyar said the economy would expand by 2.4% next year following a three-year stretch of near-stagnation under former leader Viktor Orban, with growth seen accelerating to over 3% by 2030.
Magyar also said large-scale public sector wage hikes, pension increases and tax cuts for those on lower incomes would feed into stronger consumption, boosting inflation, although he described a 3% expected rate as a "healthy" level.
"Although the market may be satisfied with Hungary's direction, the trade has proven too heavy, and profit-taking has pushed yields higher, in some cases causing Hungary to underperform its CEE peers, which were also weighed down by global paying flows," ING economists said.