The Monetary Council held its usual interest rate-setting meeting on Oct. 21. The board’s decision not to cut did not come as a particular surprise; the Hungarian base rate has been at 6.5% for more than a year now.

Analysts had previously predicted that the 6.5% rate would not change at this meeting either, as inflation in September was above the central bank’s target range (2-4%), standing at 4.3%. According to analysts, the earliest the rate of price increases could fall below 4% is in the final months of the year, and inflation is unlikely to fall below 3% until early 2026.

The monetary council’s decision came after Minister for National Economy Márton Nagy had said at a conference organized by economic news portal Portfolio that the Hungarian real interest rate is too high. According to him, a lower real interest rate would allow the MNB to achieve its inflation target, exchange rate stability, and the country’s financing would also remain stable.

Although the minister’s words sent the forint plummeting (the next morning it weakened from below 389 against the euro to 392 in quick order, and from 332 to 336 against the dollar), the monetary council nevertheless held firm; it did not change the key rate, entirely in line with analysts’ expectations.

“There was no room for interest rate cuts in Hungary today, and there will be no room for them for a long time to come,” argued Péter Kiss, investment director at Amundi Fund Management, reacting to the decision.

He pointed out that inflation is still above the target range, even though it has been reduced by about 1.5% by the government-imposed cap on retailers’ margins for staple products, the effect of which will be removed from the annual indicator base by next April at the latest. The margin cap came into effect on March 17; its impact was already reflected in the April 2025 inflation data, and the Central Statistical Office will compare the April 2026 numbers with this.

Hands Tied

According to Kiss, this fact in itself ties the hands of the MNB, whose leadership regularly emphasizes the need for strict and cautious monetary policy. And that’s even without factoring in the likely consumption-increasing effect of the fiscal measures before next spring’s elections, which are also expected to increase inflation.

“Given the government’s statements urging interest rate cuts, the central bank must appear even stricter than before, at least in communication, in order to strengthen its independence in the eyes of market participants,” Kiss suggests.

Due to inflation trends and the central bank’s priority being forint stability, Kiss said Amundi had postponed its interest rate cut expectations until mid-2026. This means that the main support for the forint’s strength – the high real interest rate – may persist, and the interest rate differential against other currencies could even increase, if other central banks further cut interest rates, Kiss believes.

Dániel Molnár, chief economist at think-tank GFÜ Gazdaságkutató, was another to say that the MNB’s decision did not come as a surprise: “Based on preliminary communication, we expected that monetary conditions would not change,” he said.

Looking ahead, citing favorable external market developments and the improvement in the international financial market environment that would follow an unexpected conclusion to the Russian-Ukrainian war, the central bank might have room to cut interest rates before the end of the year, provided that inflation trends also develop as expected.

“Otherwise, we expect the base rate to be cut only next year, provided that inflation returns to the central bank’s tolerance band on a sustained basis,” Molnár says. Other experts also agree that the central bank will not cut rates this year.

Mid-2026 Cut?

According to MBH analysts Márta Balog-Béki and Ákos Sümegi, inflation is still not within the tolerance band, and without the margin cap, the rate would be above 5.5%.

Given the inflation outlook and the public’s high inflation expectations, the central bank is not expected to be able to cut interest rates this year. Indeed, this may not be possible until mid-2026 at the earliest, but even then, only if inflation remains on target over the relevant horizon despite consumption-stimulating measures, significant wage increases and the elimination of margin cap measures.

The MNB sees a significant role for the strengthening of the forint in this, as Governor Mihály Varga emphasized at the press conference following the rate-setting meeting: the stability of the foreign exchange market is key to reducing inflation expectations.

In the region, the forint’s interest rate advantage relative to the zloty may continue to grow if interest rate cuts continue in Poland. Thus, by the middle of next year, the Hungarian key interest rate could be 250-300 basis points above the Czech and Polish base rates, which would further strengthen the attractiveness of the forint within the region.

By then, the external interest rate environment will also provide more room for the MNB, as the Federal Reserve, the U.S. central bank, has entered an interest rate-cutting cycle, and regional central banks are moving towards more easing.

“We expect a year-end interest rate level of 6.5% by the end of this year and 6% next year,” the MBH analysts said.

This article was first published in the Budapest Business Journal print issue of October 31, 2025.