Hungary opted to maintain its interest rates during the first monetary policy meeting under the leadership of Governor Mihaly Varga. The focus has now shifted to the central bank's guidance on monetary policy.

The National Bank of Hungary decided to keep the benchmark rate steady at 6.5%, which is currently the highest among European Union member states, jointly tied with Romania. The majority of economists surveyed by Bloomberg had anticipated this decision. Varga is scheduled to address the public later in the day, alongside the release of updated inflation projections.

In February, annual inflation in Hungary hit a 15-month peak of 5.6%, heightening expectations that there would be limited room for monetary easing in the remainder of the year. Prior to Varga assuming his role, the central bank had already indicated intentions to revise its inflation forecasts upward due to escalating service and food prices pushing inflation further from the target of 3%.

Economist Nicholas Farr from Capital Economics noted that the recent data is likely to strengthen the central bank's hawkish stance, anticipating a more hawkish tone in the post-meeting statement.

Despite the decision on interest rates, the forint largely held onto its intraday gains, appreciating by 0.2% against the euro in Budapest. The forint's year-to-date increase of 3.4% remains second only to the Russian ruble among emerging-market currencies.

Inflation has posed challenges for Prime Minister Viktor Orban, especially with an upcoming election and the ongoing cost-of-living crisis. The government recently enforced measures to limit retailers' profit margins on essential food items in an attempt to curb inflation, resulting in a noticeable drop in affected product prices.

Governor Varga, who previously served as Orban's finance minister, assumed his new position at the central bank with a commitment to prioritizing price stability and maintaining a tight monetary policy. The central bank has refrained from adjusting the key rate for the past five months.

Market analysts foresee a minimal likelihood of an interest rate cut this year, as indicated by forward rate agreements. Some traders are even betting on a rate hike within the next three months, supported by the central bank's hawkish monetary policy stance aimed at bolstering the forint. Policymakers have highlighted concerns about currency depreciation influencing inflation through increased price passthrough.