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The public’s concerns are shared by the National Bank of Hungary (MNB): as the press deadline for this edition of the Budapest Business Journal approached, the central bank’s monetary council once again kept the base rate unchanged at 6.5%, reiterating its concerns about inflation risks and the need for stability.
MNB Governor Mihály Varga said the decision was unanimous and emphasized that early-year repricing would be closely monitored due to its impact on inflation forecasts.
“Prolonged trade and geopolitical tensions continue to pose a risk to the slightly improving global economic growth. Globally, inflation is moderating slowly, while the price dynamics in the euro area were close to the European Central Bank’s target during recent months,” the Monetary Council said in a statement accompanying the decision.
While stressing caution, in another optimistic comment it added: “From this year onwards, both internal and external factors contribute to the pick-up in growth. Due to rising real wages and the government’s income-increasing measures for households, consumption will support growth over the entire forecast horizon.”
The council also reiterated the MNB’s earlier forecast that headline inflation will “briefly decline” below the 3% inflation target early this year, before “temporarily rising” close to the 2-4% tolerance band’s upper bound, predicting that the 3% target will only be met “in a sustainable manner in the second half of 2027.”
In more somewhat veiled warnings, presumably alluding to the government’s pre-election policies, the council noted that higher budgetary expenditures “will make it more difficult to reduce the public debt-to-GDP ratio.” In addition, while corporate price expectations had shown “subdued dynamics” in the last six months, household inflation expectations had stagnated.
The council’s decision, though in line with most analysts’ predictions, helped lift the forint to new heights, pushing the U.S. greenback to below 317 at one point, a level not seen since February 2022, while the euro briefly slipped below 380 for the first time in two years.
Economists sympathize with the MNB’s concerns. In note issued on Jan. 14, OTP Global Markets argued: “Incoming data strengthen again our view that inflation persistence has still not been satisfactorily broken, so the central bank’s caution remains warranted.” It then added a more straightforward reference to government policies pre-election, “This is particularly true if we take into account the 11% minimum wage hike, effective from this January, and the consumption-stimulating government measures coming into effect these days.”
A few days later, Péter Virovácz, a senior economist with ING Bank who was speaking to foreign journalists, reviewed Hungary’s dismal economic performance over the last three years and how the repeated upbeat forecasts of growth by government officials had proved mythical, 2025 being a case in point.
“We can all remind Mr. Márton Nagy, Minister of National Economy, [that he spoke of growth] from 3% to 6%. Now, we are not talking about 5-6%, not even 3%, because probably that could push Hungary into strong imbalances,” Virovácz said, adding that the expected growth of just 0.5% for last year might yet prove optimistic.
Indeed, in the current state of the domestic and global economies, “No one really believes that the Hungarian economy is able to grow at a faster rate than 3%,” he argued.
On top of the generally disappointing indicators, Virovácz reminded his audience that even the 4.4% annual inflation figure for 2025 was a result of government price caps on popular food items, without which the consumer price index would be a far less impressive 5.6-5.7%.
Yet, notwithstanding the numerous uncertainties, Virovácz and other economists (including OTP Global) believe the central bank can and is preparing for rate cuts.
While predicting 3.2% average inflation for 2025, with some “green shoots” in the economy, he forecasts the likelihood of two rate cuts.
“We are slightly moving into the territory of politics, but you can see a big drop in inflation just at the [time of] the general election […] when year-on-year inflation will drop to close to 2%, or even below,” he said.
While this “maybe a coincidence,” he notes that from the implied Bubor (Budapest Interbank Offered Rate) outlook, “Practically speaking, the market is expecting at least two rate cuts of two times 25 basis points in the coming months. I think the central bank will take its chances, and they will cut, maybe a bit more if it happens that the markets are expecting a bit more,” he concludes.
While certainly not the end of the story, since with the removal of price caps (scheduled, on paper before the elections, but likely to be extended further), Virovácz sees CPI climbing to peak at 5% or just over in 12 months time, such cuts will, at least, bring interest rates close to those of regional peers, and likely encourage more confidence, and consumption, in the public mood, if realized.
While government policies and adverse global trends and their impacts on the Hungarian economy are continually monitored and evaluated, one negative trend seems to be traveling under the general radar: Hungary’s shrinking labor pool.
According to ING senior economist Péter Virovácz, while unemployment and participation rate data look fine, in the last three years alone, the actual numbers at work indicate an alarming trend.
“The number of labor force participants in the market has been moving constantly lower since mid-2022, [the time of] the peak labor market in Hungary, when we had, like a 3.3% unemployment rate,” he told foreign journalists on Jan. 19.
“We are losing a lot of people: 134,000 lost in the past three years. This is close to the population of the city of Pecs, the fifth largest city in the country,” he said.
Moreover, according to Virovácz, these numbers include the positive net influx of foreign workers vis-a-vis Hungarians emigrating for work abroad.
“This is because of demographic issues. More people are moving into retirement than into the labor market. In part, people aged 18 are still studying, but also [we have] bad healthcare, and people dying. To put it bluntly, that’s it!” he said.
Such demography means companies will have a really hard time sourcing labor, and wage costs will rise further as a result, he argues.
“Of course, the wage story is really important, because if the labor shortage is there, and if companies are trying to keep labor, wage growth will remain high,” Virovácz reasons, adding that this reality has to be understood and managed. “You can’t compete with nature, let’s put it that way,” he added.
This article was first published in the Budapest Business Journal print issue of January 30, 2026.
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