Central Bank leaves rates unchanged in May

Rates remain on hold as expected: At its meeting on 27 May, the Central Bank decided to leave the base rate unchanged at 6.50% for the eighth consecutive month, as markets had expected.

High inflation and inflation expectations trump weak economy: The key factors influencing the Central Bank's decision included above-target inflation through April and household inflation expectations more than doubling the headline rate. The Bank also noted persistent upside risks to inflation due to pressures from the services sector, the threat of rising tariffs, and souring investor sentiment hurting the value of the Hungarian currency. For the Bank, these factors took precedence over reigniting the domestic economy, which weakened unexpectedly in Q1 2025.

Most panelists expect rate cuts this year: The Central Bank provided no explicit forward guidance on the future direction of interest rates. Nevertheless, most of our panelists expect 25–100 basis point cuts by the end of the year, while a small minority see rates unchanged. Higher-for-longer inflation and a weaker-than-expected forint could further delay the Central Bank’s monetary policy easing cycle. The Bank’s next meeting is due for 24 June.

Panelist insight: Goldman Sachs’ Kevin Daly and Johan Allen said: “The guidance out of the [Central Bank] was broadly unchanged. The press release continued to include language that "a careful and patient approach to monetary policy remains necessary due to risks to the inflation environment as well as trade policy and geopolitical tensions" and that "maintaining tight monetary policy conditions is warranted". Our base case is that the MNB will recommence a cautious cutting cycle in Q3.” ING’s Peter Virovacz and Frantisek Taborsky held a more hawkish view: “We think it is safest to assume that the policy rate will remain at 6.50% for the rest of the year. However, we do not completely rule out the possibility of a deviation from this towards the end of the year, given the inflation risks and the sensitivity of the forint.”

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