Hungary’s central bank may add climate risk scenarios to policy framework

By Gergely Szakacs

EGER, Hungary, Sept 10 (Reuters) – Hungary’s drought and a likely rebound in global food prices could push up inflation next year, central bank Deputy Governor Zoltan ​Kurali said on Thursday, adding the bank was ‌considering adding climate risk scenarios to its decision-making framework.

Record heatwaves and chronic water shortages are shrinking maize harvests across central and eastern Europe, forcing some farmers to abandon the crop and reshaping a region long viewed as ‌a ​cornerstone of European grain production.

Hungary’s Meteorological Service ⁠said on Monday the ⁠country received its lowest summer rainfall since the start of the 20th century, while median temperatures were the second-highest behind 2024, dealing a blow to agriculture.

“The climate effects of the ​past few years cannot be described along the lines of normal developments,” Kurali told an economics conference. “Rather extreme things have ⁠played out.”

He said this year’s drought ⁠could take a substantial toll on agriculture, hitting ​the economy and likely adding to price pressures next year from ​global factors including El Nino and rising food prices ‌driven by higher fuel and fertiliser costs.

“The food price trend, which has also contributed significantly to the decline in (Hungarian) inflation, is not necessarily sustainable,” Kurali said, referring to previous falls in food ⁠prices.

The bank, which cut its base rate by 25 basis points to 5.5% last month, as expected, will hold its next policy meeting ⁠on September 22, ‌when it is also due to publish updated ⁠quarterly forecasts.

“We are considering taking the climate ​issue to ‌the next level in central bank deliberations,” ​Kurali said.

He ⁠said this would involve permanently incorporating a climate-risk scenario into policymaking and assessing its impact on growth and inflation.

However, he highlighted methodological challenges because climate models typically cover much longer periods than the central bank’s 18- to 24-month policy horizon.

(Reporting by Gergely Szakacs; Editing ​by Mark Potter)