By Gergely Szakacs and Krisztina Than

BUDAPEST (Reuters)

Hungary’s central bank would need to see faster and more durable disinflation to consider any easing in monetary conditions, a deputy governor told Reuters, adding that rate cuts were off the table as long as inflation exceeded the bank’s tolerance band.

The bank left its base rate on hold at the European Union’s joint highest level of 6.5% for the ninth straight month in June while inflation rebounds despite efforts by Prime Minister Viktor Orban’s government to tame it ahead of a 2026 election.

Hungary and neighbouring Romania recorded the 27-member bloc’s highest inflation rates in the first quarter based on EU data, preventing rate cuts despite slowing growth in Romania and protracted stagnation in Hungary.

Deputy Governor Zoltan Kurali said with inflation rebounding to 4.4% in May, there was “nothing to discuss” in terms of policy easing, despite the bank’s latest forecasts projecting hardly any economic growth for a third successive year.

“A single headline inflation reading dipping into our (2% to 4%) tolerance band is not a sufficient condition on its own for us to consider easing monetary conditions,” he said in an interview late on Tuesday.

“Inflation needs to return sustainably toward the 3% target on the policy horizon,” said Kurali, a former investment banker and head of Hungary’s debt agency AKK, who joined the bank in April.

Kurali avoided direct comment on questions regarding the bank’s potential to lower interest rates this year and mentioned that the bank was currently not providing forward guidance.

However, with its June forecasts showing inflation exceeding the bank’s target range all year, Kurali’s comments suggest the bank is all but certain to avoid rate cuts despite lingering analyst bets on a small reduction by the end of 2025.

Asked why the prolonged weakness of Hungary’s economy has failed to rein in price growth, Kurali highlighted that high inflation expectations played a key role and justified keeping monetary conditions tight.

He noted the forint’s recent stability versus the euro should have a dampening impact on inflation and inflation expectations via the FX transmission channel, indicating it was positive that monetary transmission worked effectively in money markets.

However, due to Orban’s government imposing controls on food prices and forcing telecom companies, banks, and insurers to forego planned fee increases until after the 2026 election, the risk of an inflation rebound looms when they adjust prices again.

Kurali also mentioned that the bank was reviewing its international reserves management strategy to make it “more active and more flexible,” while firmly ruling out the inclusion of any crypto assets. He stated that the strategy would “not be drastically different from current practice.”

“There will be no crypto in any shape or form,” he said of the bank’s reserves, which stood at 45.8 billion euros ($54.0 billion) at the end of May, consisting mostly of euro-denominated assets and gold.

($1 = 0.8485 euros)