NBH Statement: Maintaining the stability of the FX market is key importance in anchoring inflation expectations and thus achieving price stability, maintaining tight monetary conditions is warranted
- GDP growth is primarily supported by an expansion in household consumption, while investments and net exports hold it back.
- The tightness of the labour market is easing, whereas the unemployment rate still remains low in a historical comparison.
- Favourable repricing at the start of the year and energy prices surging as a result of the Iranian conflict, have an opposing effect on inflation.
- From March onwards, the rate of price increases will rise as a result of the pass-through of the higher energy prices. However, this will be temporarily mitigated by the impact of the price caps introduced for fuels.
- The baseline scenario in the March projection is surrounded by mostly upside risks to inflation and downside risks to growth.
- A careful and patient approach to monetary policy remains necessary due to inflation risks arising from geopolitical tensions and the uncertain financial market environment.
Forecasts:
- 2026 inflation at 3.8% (prev. 3.2%)
- 2027 inflation at 3.7% (prev. 3.3%)
- 2026 GDP at 1.7% (prev. 2.4%)
Context
The NBH's latest statement underscores a commitment to stabilizing the FX market as a means to anchor inflation expectations, signaling that tight monetary conditions will persist. Notably, the upward revisions to inflation forecasts amidst geopolitical tensions introduce significant concerns, suggesting the potential for more aggressive policy if inflationary pressures continue to mount. The outlook for growth is less optimistic, indicating a careful balancing act ahead for monetary policy.
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