After holding the base rate steady for 18 months, the Monetary Council announced a 25 basis point rate cut at its February policy meeting, in line with market expectations. The MNB also trimmed both ends of the interest rate corridor by the same margin.
The move came as little surprise. Policymakers had begun preparing markets as early as December, and following a lower-than-expected inflation reading in January, a rate cut had become all but certain. At the post-meeting press conference, MNB Governor Mihály Varga emphasized that, alongside financial market stability, the improving inflation trajectory played a major role in the decision to ease policy.
At the same time, the MNB signaled continued caution, reiterating its data-driven approach. The final paragraph of the policy statement following the decision was only marginally changed from last month, underscoring the council’s commitment to achieving the inflation target sustainably.
Policymakers stressed that risks surrounding the inflation outlook continue to warrant a careful and patient monetary stance, and that price stability can only be secured under tight monetary conditions.
“The council is constantly assessing the impact of incoming macroeconomic data and financial market developments on the inflation outlook, based on which it will take decisions on the level of the base rate in a cautious and data-driven manner from meeting to meeting,” the MNB statement read.
Decision-makers also highlighted the importance of maintaining foreign exchange market stability in anchoring inflation expectations. Overall, they described risks to the inflation outlook as broadly balanced.
Importantly, there is no pre-announced rate path. Varga made clear that the latest cut does not mark the beginning of a broader easing cycle, and that the council has not committed to any predetermined trajectory for interest rates.
Varga noted that moderate repricing in January pushed headline inflation well below the central bank’s target, while core inflation also fell beneath 3%. January repricing was the lowest since 2019 and the fifth-lowest since 2001. Disinflation was broad-based across major product categories, with even industrial goods beginning to reflect the disinflationary effects of a stronger forint.
According to Dániel Molnár, chief analyst at think tank GFÜ Gazdaságkutató, favorable inflation dynamics have created the room for monetary easing after a year and a half of steady rates. In January, inflation slowed to 2.1%, undershooting analysts’ expectations. Notably, both the full inflation basket and closely watched services prices recorded the smallest January increase since 2019, signaling a lack of underlying price pressure. The strengthening of the forint and declining fuel prices have also helped businesses contain costs.
The international backdrop has been mixed over the past month. The forint stabilized below the 380 level against the euro, a positive development amid ongoing geopolitical tensions and likely a factor in the MNB’s decision. Meanwhile, expectations regarding the U.S. Federal Reserve have shifted. Whereas markets had previously priced in one or two rate cuts by year-end, they now anticipate two or three, widening the interest rate differential in Hungary’s favor.
Nonetheless, uncertainty remains elevated in global financial markets due to geopolitical conflicts, dampening investor risk appetite and constraining the room for maneuver of emerging-market central banks.
Molnár stressed that domestic monetary conditions remain tight and that no radical policy shift is expected in the near future. In his view, abandoning the cautious and patient strategy pursued over the past year would undermine the central bank’s restored credibility. He expects the data-driven approach to continue, with the council refraining from communicating a formal rate path.
Should international conditions remain supportive and February inflation data confirm further easing, potentially falling well below 2%, another 25 basis point cut could follow at the March meeting, according to Molnár. Most analysts do not expect month-by-month rate reductions thereafter, but are projecting up to three additional cuts by year-end under a favorable scenario.
Economists see limited immediate economic impact from the cut. In Hungary’s monetary transmission mechanism, the exchange rate channel plays the dominant role, and, as the market had largely priced in the decision, no significant weakening of the forint is expected. Indeed, the exchange rate against the euro remained broadly unchanged following the announcement.
Regarding the interest rate channel, the 25-basis-point reduction has no significant impact; lending had already picked up significantly at the end of last year, thanks, among other things, to state-subsidized loans (the Home Start and Széchenyi Card programs).
However, it is important to highlight that the cut significantly reduces the budgetary burden of these programs. The other channel that might be significant is market confidence, and the MNB’s decision also sends a positive message to economic actors that the economy is starting to recover and that price stability can be maintained even with looser monetary conditions, according to Molnár.
The GFÜ Gazdaságkutató chief analyst underscored that, at the press conference, the MNB governor emphasized that decisions will continue to be made in a deliberate, data-driven manner.
Molnár highlighted that the last two inflation figures were, overall, in line with December’s expectations and that the current state of the processes may be even more favorable for this year’s forecast, which will be presented in the March Inflation Report.
Since the February inflation data, which will be published on March 10, is expected to fall well below 2%, the current action could be followed by another 25 basis point interest rate cut at the March 24 meeting, agrees János Nagy, a macroeconomic analyst at Erste Bank.
This article was first published in the Budapest Business Journal print issue of February 27, 2026.
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