Central Bank holds rates in August

Base rate still on hold: At its meeting on 26 August, the Central Bank left the base rate unchanged at 6.50%, where it has stood since September 2024. The decision was in line with market expectations and cemented Hungary as the EU member with the joint-highest interest rates.

Bank seeks to tame inflation without stifling GDP growth: A cut to the base rate was off the table in August, as inflation remained above target in July, household inflation expectations stayed high, and geopolitical and trade uncertainty continued to pose upside risks to price pressures. Meanwhile, interest rates were not raised as the Hungarian economy remained subdued in Q2, partly due to weak investment.

Cuts are still on the table: Most of our panelists have penciled in 25–50 basis points of rate cuts by December. That said, a large number of analysts still anticipate the Bank to remain on hold this year due to sticky inflation. Higher-for-longer inflation and a weaker-than-expected forint could delay interest rate cuts. The Bank will reconvene on 23 September.

Panelist insight: Erste Bank’s János Nagy commented: “Preserving the positive real interest rates remained a crucial factor of communication. Market pricing currently indicates maximum one rate cut for the remainder of the year. For now, our expectation remains: if developed market and regional interest rates develop according to our current knowledge in the coming months, then we still believe a 25-bps rate cut by the end of the year is possible.” ING analysts said: “We assume that the policy rate will remain at 6.50% for the rest of the year. However, we cannot rule out the possibility of a deviation from this towards the end of the year, particularly if major central banks adopt a more dovish approach in contrast to recent market expectations.”

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