Hungary Keeps Key Interest Rate Steady to Support Forint After Decline

(Bloomberg) -- Hungary held its key interest rate for a second month to support the forint after Donald Trump’s victory in the US presidential election triggered one of the steepest currency declines in emerging markets.

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The National Bank of Hungary kept the benchmark at 6.5% on Tuesday, matching the forecast of all 21 economists in a Bloomberg survey. That left it tied with Romania for the highest key rate in the European Union.

Geopolitical tensions, market volatility and inflation risks warrant a cautious approach to monetary policy, Deputy Governor Barnabas Virag told reporters at a briefing in Budapest. The central bank is ready to maintain its no-change approach to interest rates for a “sustained period,” he said.

Uncertainty about the Federal Reserve’s interest-rate path and potential tariffs by the incoming Trump administration caused the dollar to surge and emerging-assets like the forint to weaken this month. Hungary is in particular focus because of a strained budget, an ongoing recession and the country’s reliance on the car industry, a potential target in a trade war.

The forint’s plunge pushed the central bank to abandon a brief attempt at restarting monetary easing, despite inflation hovering close to policymakers’ 3% target. The forint has dropped more than 2 against the euro and 7% against the dollar since October, making it the worst-performing European emerging-market currency.

A large majority of the Monetary Council voted in favor of holding interest rates Tuesday, while one member sought a cut, Virag said. Upside risks remain to price-growth, including forint weakness, food-price increases and tax changes, while Hungarians’ inflation expectations are “significantly” above the central bank’s goal, he said.

Investors have pared rate-cut bets and now expect about two quarter-point reductions over the next six months, according to forward rate agreements. They even briefly speculated on hikes in Hungary after Trump’s win sent the forint into a tailspin.

(Updates with guidance in third paragraph, inflation outlook in sixth.)

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