Central Bank stands pat in June

Policymakers opt for another widely expected hold: At its meeting on 24 June, the Central Bank left the base rate unchanged at 6.50% for the ninth consecutive month, in line with market expectations. As a result, rates stayed at some of the lowest levels in the post-Covid era, albeit remaining far above those seen in the lead up to the pandemic.

Above-target inflation eclipses soft economy: The Central Bank highlighted that inflation remained above its 2.0–4.0% target for the sixth straight month in May and expects price pressures to stay above target until at least December, fanned by robust consumer demand and healthy wage growth. Moreover, inflation expectations remained elevated despite easing slightly, and policymakers pointed to significant upside risks to the inflation outlook—particularly tied to services sector pressures, rising global trade barriers and a volatile market environment hurting the currency. Still, the Bank downgraded its forecast for GDP growth in 2025, anticipating a softer-than-previously-expected recovery supported by sturdy consumption growth and normalizing trade. This likely dissuaded the Bank from hiking the base rate in June.

Dovish tilt on the horizon: The Central Bank determined that maintaining elevated interest rates will continue to be “warranted”. Still, a majority of our panelists see room for monetary policy easing, penciling in 25–100 basis points of cuts by December, while a minority sees the Bank on hold. Higher-for-longer inflation and a weaker-than-expected forint could further delay the Central Bank’s monetary policy easing cycle. The Bank will reconvene on 22 July.

Panelist insight: Goldman Sachs’ Kevin Daly and Johan Allen commented: “We believe the [Central Bank] will open the door to a rate cut before year-end, potentially softening its guidance already at the July meeting if the HUF continues to exhibit somewhat lower volatility and activity data continues to disappoint.” Analysts at ING were more hawkish: “We believe it is safest to assume that the policy rate will remain at 6.50% for the rest of the year. While we do not completely rule out the possibility of a deviation from this towards the end of the year, it is unlikely given the inflation risks. Furthermore, another geopolitical sell-off could cause major central banks to postpone their easing agenda, which would further restrict the scope for monetary easing in Hungary.”

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