The National Bank (MNB) is widely expected to leave its benchmark interest rate unchanged at 6.5% at Tuesday's policy meeting, but analysts are split on the course of monetary policy for the remainder of the year, financial website Portfolio.hu writes.

The MNB has left its base rate unchanged in the last six meetings.

While many rule out monetary easing in 2025 altogether, an equal number see scope for two cuts this year. Of the ten analysts queried by Portfolio, four expect the base rate to remain unchanged by the end of December, two expect a 25bp cut and four economists see a 50bp reduction in lending rates.

Since taking office in March, Governor Mihaly Varga has repeatedly emphasised the central bank’s commitment to reaching price stability and its focus on fighting inflation, while flagging growth risks and inflationary risks from trade tensions.

Following the March rate decision, the former finance minister and an ally of Prime Minister Viktor Orban said that the MNB will continue its "disciplined", "stability-oriented" monetary policy as economic and flagged that rates could remain at current levels for a prolonged period. Comment by Varga suggests no shift in forward guidance is imminent.

Since the last rate-setting meeting a month ago global tensions have risen, with an escalating trade war in the US dampening economic prospects and fuelling financial volatility. In Hungary, March inflation data surprised positively, falling from 5.6% in February to 4.7%.

The government has introduced a cap on profit markup for retailers, which is likely to accelerate disinflationary trends. Meanwhile, the forint has resumed its weakening trend, fiscal loosening concerns have mounted, and S&P has placed Hungary’s sovereign rating perilously close to junk territory.

Analysts have also revised their growth and inflation forecasts in the wake of the recent market volatility and the recent government measures. CIB Bank has slashed its GDP forecast for 2024 to 1.5-1.7%, below both the government’s recently trimmed 2.4% estimate and the central bank’s March range of 1.9-2.9%, citing a shifting macroeconomic environment.

The announcement by telcos and banks to roll back their price hikes for 2025, bowing to government pressure and measures to extend profit caps to non-food items will likely dampen inflation risks, according to CIB, which lowered its forecast for 2025 from 5% to 4.5-4.7%.

An analyst by Unicredit argued that despite the visible disinflationary trends, the MNB is set to begin easing in such a volatile geopolitical setting. The forint is still seen as a risky asset and the interest rate "shield" must stay in place to guard against abrupt currency depreciation. Analysts and policymakers agree that high real interest rates offered by MNB is needed to achieve inflation targets and keep the currency stable.