The MNB decision on Sep. 22 was in line with market expectations. However, the central bank indirectly adopted a tighter policy stance by signaling it will lower its medium-term inflation target to 2.5% from 3% from the start of 2027, while retaining the existing plus-or-minus one-percentage-point tolerance band.
Governor Mihály Varga said the lower target better reflects Hungary’s level of economic development and could increase the likelihood of the country meeting the Maastricht criteria. From 2027, the MNB will also reduce the number of monetary policy meetings from 12 a year to eight, bringing its schedule closer to that of the European Central Bank.
The rate decision itself was not a surprise, but the MNB has adjusted its forward guidance. The central bank now places greater emphasis on data-driven decision-making, alongside its commitment to achieving the inflation target sustainably.
The MNB said that maintaining positive real interest rates and financial market stability, particularly in the foreign exchange market, would help anchor inflation expectations. It added that the Monetary Council would continuously assess the inflation outlook, global developments, and domestic risk premia before making interest-rate decisions.
The message points to a cautious approach to monetary easing. While the central bank maintained the current 5.5% rate, it made clear that future decisions would depend heavily on incoming economic data and financial market conditions.
Analysts at MBH Bank expect the benchmark rate to remain at 5.5% through to the end of 2026. They pointed to geopolitical risks, particularly the Middle East conflict and its potential impact on energy prices, as an upside risk to inflation. Higher energy prices could feed into prices across a broad range of sectors, while this year’s severe drought in Hungary and elsewhere in Europe could also put upward pressure on food prices, according to the bank.
The MNB’s latest macroeconomic forecast also reflects a more cautious approach. While the central bank slightly lowered its GDP growth projections for this year and next, it left its 2026 inflation forecast unchanged at 1.8%. The forecast for 2027, however, was raised sharply, from 2.3% to 3.1%.
According to Gábor Regős, an analyst at Gránit Fund Management, the upward revision is mainly linked to higher energy prices and changes to excise duties on tobacco products. Regős says that, depending on market developments, one or even two rate cuts could still be possible before the end of the year. However, the uncertainty surrounding the forint and global markets makes the timing of any such move difficult to predict.
As mentioned, MBH Bank takes an even more cautious view. Its analysts do not expect another reduction before 2027, and forecast a 5% benchmark rate by the end of 2027.
The reduction in the inflation target is potentially more significant for monetary policy than the September rate decision itself. Regős notes that a lower target could require somewhat tighter monetary conditions, at least initially, if the central bank is to establish credibility around the new objective. A more stable exchange rate could also play an important role.
At the same time, he argues that a lower inflation target does not necessarily mean permanently higher nominal interest rates. If the MNB succeeds in anchoring inflation expectations, actual inflation could decline, allowing the central bank to achieve an adequate real interest rate with a lower nominal policy rate.
The timing of the target change has another dimension. Hungary has indicated an ambition to meet the Maastricht criteria for joining the single currency around 2030, and lower domestic inflation would make convergence towards euro-area price stability easier.
The current inflation environment also provides a more favorable backdrop for introducing a lower target. As Regős notes, setting a lower inflation objective is easier to establish as credible when inflation is relatively low than during a period of double-digit price increases.
He does not expect the new target, by itself, to significantly weigh on economic growth. The experience of recent years, he argued, shows that high inflation can itself substantially undermine economic performance.
MBH Bank analysts said the central bank has so far pursued a policy that has supported exchange-rate stability. A renewed easing cycle while external sentiment remains weak and fiscal risks persist could put pressure on the forint and potentially raise questions among market participants about monetary-policy credibility, they argue.
This is also why a rate cut could be difficult to justify in the immediate future. Markets are not currently pricing in an imminent reduction, meaning an unexpected easing move could put additional pressure on the domestic currency.
Erste Bank analyst János Nagy says the September rate decision was no surprise, while the change in the inflation target was broadly in line with earlier reports. In his view, the new target immediately raises the question of whether the current policy rate is sufficiently high to deliver the lower inflation objective. The possibility of rate cuts could therefore remain off the table in the coming months, although the MNB’s emphasis on data-driven policy leaves room for changes if economic conditions improve.
The key question for monetary policy now may be how long the current external inflationary pressures persist.
“If we looked exclusively at the current inflation figure, there could have been room for further easing,” Regős said. However, global energy prices have risen significantly, putting pressure on the forint as well.
For the MNB, this creates a difficult balance. Cutting rates too early could put additional pressure on the currency and inflation expectations, while maintaining restrictive monetary conditions for too long could weigh on domestic demand and investment.
This article was first published in the Budapest Business Journal print issue of October 2, 2026.
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