As expected, the MNB’s Monetary Council reduced its base rate at its June monetary policy meeting, with Governor Mihály Varga confirming during the post-meeting press conference that further cuts are likely. According tothe governor, the favorable market environment, slowing inflation, easing inflation-related risks, and declining government bond yields all created headroom for additional monetary easing and rate cuts during the summer.
“There were no surprises in Tuesday’s decision,” said Dávid Németh, chief analyst at K&H Bank. The central bank also reduced the interest rate corridor by 25 basis points, bringing the overnight deposit rate to 5% and the overnight lending rate to 7%.
“The MNB continues to pursue a credible monetary policy, adjusting its decisions in line with changing economic conditions. Its communication is also consistent with our expectations, as we continue to anticipate further 25-basis-point rate cuts in both July and August,” Németh commented on Governor Varga’s remarks.
Following the rate decision and the governor’s press conference, the forint weakened modestly. Shortly before 4 p.m. on June 23, the euro traded between HUF 355 and 356, compared with around HUF 353 earlier in the day. According to Németh, the weakening was not unexpected, as the announcement marked the start of an easing cycle, reducing the interest rate advantage that had supported the Hungarian currency.
Alongside the monetary policy statement, the MNB also released key figures from its latest Inflation Report, indicating a more favorable macroeconomic outlook than previously expected. The central bank now forecasts average annual inflation of around 1.8% in 2026, rising to 2.3% in 2027. This compares with its March forecast of 3.8% and 3.7%, respectively, signaling a significantly more benign inflation outlook.
The MNB also revised its GDP forecast upward. Hungary’s economy is now expected to expand by 2% this year, compared with the previous projection of 1.7%. The 2027 growth forecast remains unchanged at 3%.
“It was widely expected that the central bank would revise its projections in a more positive direction, reflecting both domestic and international economic developments,” Németh said.
Looking ahead, K&H expects average annual inflation to reach 2.4-2.5% this year before accelerating to around 3.5% in 2027. The bank forecasts GDP growth to accelerate from 1.5% this year to 2.5% next year.
The MNB’s decision also came as no surprise to MBH Bank. Commenting on the outlook for monetary policy, MBH Bank analyst Ákos Sümegi noted that the bank had already suggested after the May policy meeting that a de-escalation of the Middle East conflict was becoming increasingly likely.
“That scenario now appears to be materializing, as negotiations between the parties continue and the strategically important Strait of Hormuz has reopened. Brent crude remains below USD 80 per barrel, while domestic fuel prices have fallen below the government’s protected price level. If peace in the Middle East proves durable, the phasing out of fuel price controls is unlikely to generate significant inflationary pressure,” he said.
“Hungarian inflation remains exceptionally low. Annual inflation stood at 1.8% in May. We expect inflation to rise gradually until early 2027, but still remain within the MNB’s tolerance band both this year and next. The strength of the forint continues to support the central bank’s inflation objective, and the expected rate cuts are unlikely to undermine this, as financial markets have already largely priced in further easing,” Sümegi added.
He also said that Varga’s communication reinforced MBH’s expectation that the MNB could continue lowering the base rate by 25 basis points at consecutive meetings, taking it to 5.5% by the end of the summer. After that, the bank expects a pause before rates decline further to around 5% during 2027. However, if recent favorable trends persist, even lower rates could become feasible.
János Nagy, macroeconomic analyst at Erste Bank, described the changes in the central bank’s outlook as “radical.” Commenting on the updated Inflation Report, he said the revision represented a substantial shift not only compared with the MNB’s March forecast but also relative to current market consensus, which expects inflation of around 3% this year.
He also highlighted that, alongside the sharp decline in inflation, the MNB’s forward guidance had changed significantly. The Monetary Council reiterated its commitment to achieving the inflation target on a sustainable basis while continuously assessing inflation prospects, global developments and domestic risk premiums. It also stressed that maintaining the stability of domestic financial markets, particularly the foreign exchange market, remains essential for anchoring inflation expectations.
If favorable trends continue, the council sees scope for further rate cuts during the summer while maintaining positive real interest rates, with decisions beyond that likely to be based on the September Inflation Report.
Nagy added that Erste’s latest inflation forecast stands at 2.8%, significantly above the MNB’s revised forecast of 1.8% for 2026. Based on inflation dynamics, the bank had previously expected only one additional rate cut this year.
“Following today’s communication from the MNB, that assumption now appears too conservative. We will revise our interest rate forecast accordingly,” he said.
“The new Hungarian government’s commitment to introducing the euro, the prospect of unlocking EU funds, and improving investor confidence in Hungary’s fiscal and monetary policy have allowed the MNB to diverge from the prevailing international trend of higher interest rates for the first time in a long while,” said Péter Kiss, chief investment officer at Amundi Alapkezelő.
According to Kiss, the forint remained broadly stable because markets had already priced in the narrowing interest rate differential between Hungary and international markets. He added that the outlook now depends largely on whether the government can maintain investor confidence. If it succeeds, Hungary could see a meaningful decline in its risk premium and a significant reduction in debt-servicing costs over the next one to two years.
This article was first published in the Budapest Business Journal print issue of July 3, 2026.
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