As widely expected, the Monetary Council of the National Bank of Hungary (MNB) left the base rate and the interest rate corridor unchanged at its latest rate-setting meeting on March 24. Against the backdrop of escalating tensions in the Middle East, policymakers struck a markedly cautious tone in their communication.
The central bank also released the key figures of its latest Inflation Report. The MNB raised its inflation forecast for this year to 3.8% from 3.2%, and for next year to 3.7% from 3.3%, citing a surge in energy prices driven by the Iran conflict.
At the same time, geopolitical developments are expected to weigh on economic growth: the GDP growth forecast for 2026 was revised down to 1.7% from 2.4%, while the projection for 2027 was trimmed to 3% from 3.1%.
According to the Monetary Council’s risk assessment, the baseline scenario outlined in the March forecast is predominantly surrounded by upside risks to inflation and downside risks to growth. The alternative scenarios highlighted by the council assume a prolonged period of geopolitical tensions, stronger-than-expected consumption growth, and a slower recovery in the external economic environment.
Based on the updated quarterly projections, annual inflation could move above the MNB’s 2-4% tolerance band in the third quarter and even exceed 5% by year-end. It is then expected to decline gradually, returning sustainably to the 3% mid-range target by Q3 2027.
At the post-meeting press conference, MNB Governor Mihály Varga noted that household inflation expectations had moderated prior to the outbreak of the Iran conflict: perceived inflation fell from 12.2% to 9.9%, while one-year-ahead expectations declined from 8.2% to 7.2%.
“The central bank’s decision did not come as a surprise, as we had anticipated no change in monetary conditions following the February rate cut,” said Dániel Molnár, head analyst at GFÜ Gazdaságkutató.
He added that the decision to pause further easing was driven primarily by external factors and the consequences of the Middle East conflict, despite more favorable-than-expected inflation developments in February. Consumer price growth slowed to 1.4% in the second month of the year, its lowest level in a decade, supported by a stronger forint and lower fuel prices, which helped contain imported inflation.
Molnár noted that underlying price dynamics also remained subdued, with no signs of significant inflationary pressure at the start of the year that would have justified maintaining tight monetary conditions. However, the escalation of the Iran conflict has fundamentally altered the outlook.
Looking ahead, he stressed that the trajectory of inflation and interest rates remains highly uncertain and will depend largely on the course of the conflict. A prolonged escalation, particularly if accompanied by renewed tightening by major central banks, could force the MNB to raise rates to safeguard financial stability. Conversely, a swift de-escalation and stabilization in energy markets could allow for limited easing later this year, although even in that case, only one or two rate cuts would be likely.
This heightened uncertainty is reflected in the MNB’s communication, which placed increased emphasis on maintaining financial market stability (particularly in the foreign exchange market) as a prerequisite for anchoring inflation expectations and achieving price stability.
Analysts at MBH Bank, Márta Balog-Béki and Zoltán Árokszállási, noted that while a further rate cut had seemed plausible after February’s decision, the outbreak of the Middle East conflict has upended those expectations.
Since the escalation, the euro-forint exchange rate has shown heightened volatility, with the currency moving by several percentage points within a single day. Rising oil and gas prices are expected to push inflation higher in the coming months, with the magnitude of the impact depending on the duration of the conflict.
Markets have already begun to price in the possibility of an interest rate hike this year, reflecting concerns over inflation risks and the vulnerability of the forint. However, following the latest decision, the currency has not weakened significantly, a development that could signal that markets are not yet forcing the central bank into premature tightening.
“Should the situation in the Middle East deteriorate further, interest rates may eventually need to rise, but we are not there yet,” the MBH analysts said. Looking ahead, they noted that oil market participants continue to expect a gradual stabilization in the coming months.
They also pointed out that recent decisions by the Federal Reserve and the European Central Bank have been relatively reassuring, supporting the case for a continued pause by the MNB in the near term.
The analysts expect the base rate to stand at around 6% by year-end, with the possibility of renewed rate cuts emerging toward the end of the year, provided that conditions in the energy market stabilize.
This article was first published in the Budapest Business Journal print issue of March 27, 2026.
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