Hungary gives fuel traders two weeks to match regional average prices

An employee holds a gas pump to refill a car at a petrol station in Budapest

BUDAPEST (Reuters) - Hungary's government is giving fuel traders two weeks to adjust their prices to the central European average, Economy Minister Marton Nagy was quoted by the outlet as telling a news conference on Wednesday.

Prime Minister Viktor Orban's government scrapped a fuel price cap in December 2022 after a lack of imports and panic buying led to fuel shortages, but promised it would intervene again if fuel prices rose above the regional average.

On Tuesday, the national bank said fuel price margins had widened since the cap was scrapped, exceeding not just their previous levels but also average levels seen elsewhere in central Europe.

"In two weeks, the government will revisit this issue, look at price developments and intervene with tough measures if fuel retailers do not return to the regional average," Marton Nagy was quoted as saying.

On Tuesday, deputy central bank governor Barnabas Virag said he believed any intervention that "moves the market towards a lasting and sustainable decrease in these margins, setting fuel prices on a lasting and sustainable lower path" was justified.

In the first quarter of last year, annual inflation in Hungary stood at 25%, the highest in the European Union. It stood at 3.6% last March, but economists see it rebounding to 5.4% by the end of 2024 as base effects fade and services inflation stays hot.

Morgan Stanley economist Georgi Deyanov said Hungary's plan to align fuel prices to the regional average could trim 20 to 30 basis points off headline inflation, raising the chances of keeping it within the central bank's tolerance band.

"We think that such an outcome would create a favourable environment for the NBH to proceed with 25bp of rate cuts per meeting in 3Q24," he said.

"Yet, for the central bank to consider such an option, we believe more favourable global financial conditions would need to materialise too."

(Reporting by Boldizsar Gyori and Gergely Szakacs; Editing by Kevin Liffey)