Hungary: Magyar Nemzeti Bank cuts rates in August
Latest bank decision: At its meeting on 25 August, the Monetary Council of the Magyar Nemzeti Bank (MNB) decided to lower the base rate by 25 basis points to 5.50%—its lowest level since May 2022—following July’s reduction. The decision was in line with market expectations.
Subdued inflation and stable risk premiums leave room for further easing: The MNB saw room for another cut in August due to favorable inflation developments: Headline inflation eased to 1.2% in July, below expectations and the MNB’s June projection, while core inflation declined to 1.9% in the same month. Household inflation expectations remained below their level at the beginning of the year, and companies’ price expectations for retail sales and services declined from the previous month. Moreover, inflation is expected to remain below the MNB’s 3.0% target for the rest of 2026 and throughout 2027, before returning to target in the first half of 2028. Meanwhile, the risk premium on domestic assets remained stable, preserving the Monetary Council’s room to maneuver.
Further rate cuts likely ahead: Looking ahead, the MNB did not provide explicit guidance on the size or timing of further rate cuts, stating that the Monetary Council will decide on the future path of the base rate based on the September Inflation Report. Most of our panelists expect another 25 basis point cut at the MNB’s next meeting on 22 September and additional monetary easing by December, as inflation is set to remain subdued, giving the Bank room to focus on boosting domestic demand.
Panelist insight: ING’s Peter Virovacz, Frantisek Taborsky and Zoltán Homolya commented:
“Looking ahead, we expect policymakers to stick to the euro adoption roadmap, particularly the planned medium-term fiscal path, with EU funds set to arrive in the fourth quarter as expected. We expect inflation to remain low and stay below the central bank’s target for the rest of the year, although we anticipate some acceleration in the months ahead. While external risks are mounting again, we forecast three further rate cuts this year if the risk premium for Hungarian assets remains broadly unchanged. This would put the base rate at 4.75% by the end of 2026, with a terminal rate of 4.00% by the end of 2028, in our view.”