The MNB’s Monetary Council continued to hold the base rate at 6.5% at its rate-setting meeting on July 22; at the same time, it reduced the required reserve ratio from 10% to 8%. The base rate has remained unchanged in the past 10 meetings, dating back to September 2024.
The central bank remains cautious and patient: in the last paragraph of the statement published following the meeting, the MNB reiterates its commitment to sustainably achieving the inflation target. The risks surrounding the inflation environment, as well as trade and geopolitical tensions, continue to necessitate a cautious and patient monetary policy. In the council’s judgment, maintaining tight monetary conditions is justified.
“The decision did not surprise the market as it was in line with our expectations and the analyst consensus,” MBH Bank experts said in response to the move. “The domestic base rate has been unchanged for 10 months
now. To some surprise, the central bank reduced the required reserve ratio from 10% to 8%, but this did not cause any market reaction,” they added.
According to Zoltán Árokszállási and Ákos Sümegi, analysts at MBH, the central message of the press conference following the meeting was that a stability-oriented monetary policy was necessary, which could mean maintaining an unchanged base rate for an extended period. It was also important, according to MNB Governor Mihály Varga, that strong corporate repricing can still be observed, in addition to price-limiting measures.
In addition, Varga implied that macroeconomic data for the second quarter also indicates a subdued economic performance; the economy could essentially stagnate, he implied.
“We do not think that the coming months will be about the MNB starting to cut interest rates. Inflation accelerated somewhat further in June, while core inflation decreased quite significantly. However, the decrease in core inflation was caused by the margin freeze on household goods, so it is uncertain how sustainable this process is,” the MBH analysts point out.
Regarding inflation expectations, apositive sign is that, according to the MNB, there are some key indicators that could improve this situation. This is primarily due to the stability and relative strength of the exchange rate. While the forint was the most volatile currency in the region during the first few months of the year, by the beginning of July, its stability had become similar to that of the Czech koruna, which is generally very stable.
The decrease in core inflation is also being helped by the fact that the rate of wage outflow has slowed, and the labor market is loosening. However, the elimination of margin caps (officially due to end in August but expected by many not to happen until next year) will noticeably increase inflation.
According to the MBH analysts, exchange rate stability is one of the most important tools for reducing and anchoring inflation expectations, and the central bank will not relinquish this approach. Inflation expectations typically do not decrease rapidly.
“For this reason, it is also possible that the MNB will not be able to cut interest rates at the end of this year, but only next year, and even then, not to the extent that we currently expect. We therefore see upside risks in our current year-end interest rate forecast of 6.25%,” the MBH analysts warn.
The rate decision did not surprise Erste Bank analyst János Nagy. According to him, the change in the reserve ratio was fundamentally adjusted to European conditions and the reduction in excess liquidity in the banking system. The underlying message remains unchanged compared to previous statements.
“Maintaining a positive real interest rate continues to be an important part of the communication. Market pricing currently indicates at least one rate cut for the rest of the year. Our expectation is that, if developed market and regional interest rates develop according to our current knowledge, then we still consider a 25 basis point rate cut at the end of the year conceivable,” he said.
However, according to K&H Bank head analyst Dávid Németh, the chance of an interest rate cut this year is decreasing. Any relaxation can only take place in the last months of the year, if at all, he believes.
“Based on inflationary trends, caution is still warranted. In addition, the euro exchange rate has been hovering around 400 forints for a long time; there has been no significant strengthening that would help achieve inflation targets, so the exchange rate does not justify monetary easing,” he says.
“In addition, major central banks, such as the European Central Bank and the Fed, are also waiting. This is important because the MNB has previously indicated several times that it is monitoring the decisions of major international central banks, as they may affect the domestic interest rate spread, and thus indirectly the forint exchange rate,” Németh adds. The MNB’s ability to make a move this year is mainly dependent on factors outside its control.
“It is not ruled out that a 25-basis-point reduction will take place towards the end of the year. However, this largely depends on the foreign environment, as well as the aforementioned macro indicators and the exchange rate,” he said.
This article was first published in the Budapest Business Journal print issue of July 25, 2025.
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