The Monetary Council (MC) of Hungary kept its key policy interest rate (3-month deposit rate; +0.9% since May 2016) and the overnight deposit rate (-0.05%) unchanged this week, even though headline inflation rose to a 76-month high of 3.9% y/y in April, approaching the upper limit of the MC’s 3% ± 1pp target range. Moreover, core inflation remained unchanged at an elevated 3.8% y/y in April, though the MC noted that indirect tax effects contributed +0.4pp to that rate. However, the MC seems to ignore that overheating concerns remain on the agenda. Real GDP rose by a whopping +5.3% y/y in Q1 while the unemployment rate fell to a low of 3.5% in February-April 2019 and nominal wage growth accelerated again to +12.1% y/y in February from +10.2% in December 2018, according to the Hungarian Central Statistical Office. We expect inflationary pressures to continue for some time and will monitor closely if the MC is prepared to tighten monetary policy when needed.
