Hungary: Magyar Nemzeti Bank cuts rates in July
Policy rate down to an over four-year low: At its meeting on 21 July, the Monetary Council of the Magyar Nemzeti Bank (MNB) decided to lower the base rate by 25 basis points to 5.75%—its lowest level since May 2022 and mirroring June’s reduction.
Low inflation and a strong currency make room for another cut: The MNB saw room for another cut in July due to a favorable inflation panorama: Headline inflation remained below target in June and core inflation remained tame, both below market expectations and the MNB’s June forecast. Additionally, the macroeconomic outlook aligned with the Bank’s June forecast and the forint remained at one of its strongest levels against the euro in recent years—supported by a post-election lift in market sentiment and the unfreezing of EU funds—providing the Monetary Council with further room to maneuver.
Further cuts are almost certain: Looking ahead, the Central Bank indicated that it “sees room to further decrease the base rate throughout the summer”, with a decision to be made based on the evolution of inflation. Accordingly, almost all of our panelists see at least 25 basis points of further rate cuts, with the median projection being for 50 basis points of reductions, as our Consensus is for inflation to average below the mid-point of the MNB’s 2.0–4.0% target range in 2026 as a whole. That said, the partial unwinding of fuel price caps in June is set to lift price pressures from H1 levels in H2, and stronger-than-expected pass-through effects to the rest of the economy pose an upside risk to the policy rate.
The MNB is scheduled to reconvene on 25 August.
Panelist insight: EIU analysts said:
“Despite the evident upside risks to inflation over the next year, we believe that the NBH will make further rate cuts in August and September. We then think it will take a six- to nine-month pause to assess the impact of the cuts made thus far and to await the impact on food price inflation of the domestic drought and the global El Niño phenomenon. Our base case assumes that it will be sufficiently confident to resume lowering rates in the third quarter of 2027.”