The September rate-setting meeting of the Monetary Council marked the one-year anniversary of introducing the current base rate. That the 6.5% key rate remained unchanged once again was in line with analysts’ expectations.
There is likely to be no room for easing in the coming months, as inflation was at 4.3% in August, still above the central bank’s 2-4% target range. The earliest the rate of price increases might fall below 4% is believed to be in the last months of this year. However, due to the base effect, it is conceivable that inflation will fall below 3% in early 2026.
The decision means that the base rate will remain at a level that has helped keep the forint strong since the beginning of the year. In recent months, the Hungarian currency has become a favorite of carry trade investors globally, profiting from the interest rate difference, and it is primarily due to this that it has strengthened to 390 against the euro.
The decision by the MNB surprised no one. Based on the central bank’s previous communication, it could have been expected that monetary conditions would not change, says Dániel Molnár, head analyst at economic think-tank GFÜ Gazdaságkutató Intézet.
“We basically expect that the first 25 basis point interest rate cut will only take place at the end of the year, which is conditional on the Fed continuing to cut interest rates and the uncertainty regarding the inflation path,” he notes.
“We also expect only a cautious 100 basis point [overall] interest rate cut next year, as the uncertainty of the international environment may make it necessary to maintain tighter monetary conditions in the longer term,” Molnár adds. He is not alone in holding that view.
“We believe that the MNB will not be able to reduce the interest rate for at least another few months, and we expect a base rate of 6.5% by the end of 2025,” says MBH Bank analysts Márta Balog-Béki and Ákos Sümegi.
“The primary reason for this is that inflation continues to move outside the target range. In 2026, we may see inflation figures within the tolerance range, but it is important to mention that the future elimination of margin stops appears as an upside risk. We expect the government to eliminate this sometime in mid-2026,” the analysts add.
The forint has strengthened again since the last interest rate decision; one of the most important reasons for this, analysts say, is the ever-widening interest rate differential. The strong forint helps disinflation processes, primarily in the prices of fuel and durable consumer goods. For the inflation-reducing effect to be lasting, the forint should remain at strong levels for a long time.
“Since another interest rate cut is expected from the ECB, and the Fed has also started the path of interest rate cuts, the MNB’s room for maneuver is also increasing,” Balog-Béki and Sümegi argue.
“At the same time, the MNB is expected to be very careful not to risk a weakening of the forint as a result of an interest rate cut. For all these reasons, we believe that the interest rate cut cycle may start sometime in 2026, and we expect a base rate of 6% by the end of next year,” the MBH analysts say.
In the meantime, the MNB has, once again, changed its macro trajectory. As it turns out from the latest Inflation Report, central bankers now expect economic growth of only 0.6% this year, slightly below the 0.8% forecast in June.
Speaking at a press conference held after the Monetary Council meeting, MNB Governor Mihály Varga explained that the reduction in this year’s GDP forecast was due to the weaker-than-expected performance of the agricultural sector. For the Hungarian economy, 2025 has turned out to be massively disappointing: last December, the central bank had predicted growth of 2.6–3.6%; Prime Minister Viktor Orbán had bragged that the economy would get off to a “flying start.”
However, the central bank believes the economy could grow by 2.8% in 2026 and 3.2% in 2027, Varga says. The MNB expects the economic recovery to begin in the last months of this year. Growth in 2025 was hampered by a decline in corporate investments and a weak external economy, with household consumption alone keeping the economy afloat.
A turnaround is expected from 2026: alongside continued support from household consumption, investments may finally increase, and the external economy will also become more supportive, the central bank says.
The MNB has also slightly modified its inflation forecast, lowering this year’s projection by 0.1 of a percentage point and increasing the 2026 figure by 0.2 pp. Varga attributed the reduction for 2025to the inflation-reducing effects of the strengthening forint and the price margin caps.
He justified the increase in next year’s inflation forecast by the removal of those same stops, as this will lead to higher consumer prices in 2026. The central bank expects inflation to fall below 4% in the first months of next year, but achieving the 3% inflation target, which is at the midpoint of the tolerance band, will likely only be reached in the first half of 2027.
As a result, inflation may be 4.6% this year, decrease to 3.8% next year, and in 2027, hover around 3%. Varga pointed out that although inflation was 4.3% in August, the government-mandated price caps had reduced the actual rate by 1-1.5%.
This article was first published in the Budapest Business Journal print issue of October 3, 2025.
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