Latest: The bank’s long form statement, posted after the rate conditions release, said maintaining the current interest rate conditions is necessary to achieve the inflation target in a sustainable manner, and that the Council will take decisions on the base rate in a cautious and data-driven manner. It put inflation at 1.6 percent in September, in line with its Inflation Report forecast, with core inflation at 1.9 percent, and forecast average inflation of 1.8 percent this year and 3.1 percent in 2027, declining to the 2.5 percent target by the end of the policy horizon. The increase over the rest of 2026 and in 2027 is caused mainly by higher fuel prices and a change to tobacco excise duty, the Council said, and Hungary’s risk assessment will be influenced primarily by the fiscal path, expectations regarding adoption of the euro and the external market environment. The abridged minutes of the meeting will be published at 2 p.m. on November 4.
Latest: Reuters reported that the hold was in line with the unanimous forecast of the economists it polled, and that the decision came amid upside inflation risks from global energy prices and the government’s plans for large wage rises and tax cuts in next year’s budget.
Latest: The Monetary Council left the central bank interest rate conditions unchanged at its meeting on Tuesday October 20, the Magyar Nemzeti Bank said in its interest rate conditions release. The base rate stays at 5.50 percent, the overnight central bank deposit rate at 4.50 percent and the overnight collateralised loan rate at 6.50 percent, all effective from October 21. The decision matches the unanimous analyst expectation set out below. The bank’s long form statement, which carries the Council’s assessment and guidance language, had not yet appeared on its website when this update was written, and will be reported when it posts.
Hungary’s central bank decides today, and the rate itself is not the question. Analysts unanimously expect the National Bank of Hungary to leave its base rate at 5.50 percent when the Monetary Council announces at 12:00 UTC, Commerzbank’s Tatha Ghose said in a note reported by Dow Jones, and the forint fell against the euro ahead of the decision. The bank also held at 5.50 percent in September after three consecutive cuts over the summer.
What the market is trading is the guidance. Commerzbank argues there is no case for further easing at all: its preferred seasonally adjusted month on month measures, including the central bank’s own underlying core indicators, have re-accelerated from disinflationary territory to beyond target, and it says monetary policy should react to that prospective momentum rather than take comfort from favourable base effects. Headline inflation was 1.6 percent year on year in September and core inflation 1.9 percent, ING notes, but the fiscal backdrop cuts the other way in Commerzbank’s reading: the IMF has warned of a potential 7.5 percent of GDP deficit this year with no convergence back to the Maastricht ceiling in the medium term under unchanged policies.
ING takes the other side of the December question. It expects a hold today because the two developments the central bank has pointed to are fiscal, not inflationary: the 2027 draft budget went to the Fiscal Council on October 15 and its details were not public when ING wrote, leaving Governor Varga, who sits on the council, in no position to decide on numbers the market has not seen. If a credible budget and medium term consolidation plan land well, ING expects a 25 basis point cut in December to 5.25 percent, further easing next year and a terminal rate of 4.25 percent.
The budget arrived on Monday. Prime Minister Peter Magyar told lawmakers the 2027 budget will target a deficit of 4.9 percent of GDP, down sharply from an expected 7.5 percent this year, financed by higher taxes on the wealthy and large companies, expanded sectoral windfall taxes, lower interest costs and savings the government puts at 1.5 percentage points of GDP from cutting waste and corruption, Reuters reported. Erste’s analysts called the target somewhat more ambitious than the 5.0 to 5.5 percent previously expected, while flagging considerable implementation risk, and noted the finance ministry’s detailed presentation is due today, with the path beyond 2027 the key question for euro adoption and the 3 percent Maastricht ceiling.
Positioning is the vulnerability. Hungary carries by far the largest long positioning in the region on the post election euro adoption narrative, the 10 year spread over euro benchmarks has compressed to about 200 basis points with ERM II entry still more than two years away on ING’s account, and EUR/HUF briefly approached 370 in early October before recovering below 364. A hold with cut guidance removed would test those longs; a hold that keeps December alive, against a budget the market believes, is the combination the trade needs.