Since the Tisza Party’s victory on April 12, it has become clear that the new government will focus on unlocking Hungary’s currently blocked European funds. Essentially, this is all the information available to make predictions about Hungarian fiscal and monetary policy in the near future. However, there are some pillars that could indicate, if not a clear path, at least a range of possible scenarios.
Since emerging as a politician in 2024, Péter Magyar has presented himself as a fearless figure willing to make bold statements, openly accusing the Orbán government and its close allies of corruption, and promising legal action against all those who have misappropriated public funds.
Immediately after his victory, he called on several leaders of the public administration, appointed by the Orbán regime and therefore regarded as servants of the system, to resign. There was one notable exception: Mihály Varga, Governor of the National Bank of Hungary (MNB), previously a long-serving minister in the Orbán cabinet.
Magyar explained that, in the current economic situation, targeting the MNB Governor would undermine the trust of international financial markets in Hungary, a trust that is already fragile, we might add. As the incoming prime minister put it, “there is no need to deepen the chaos.”
The independence of the central bank is important for the new government, and as long as the governor operates in accordance with the regulations, there is room for cooperation, Magyar added.
This demonstrates that Magyar and the new cabinet are well aware of the context inherited from the previous government. For years, the Orbán cabinet operated with overly optimistic GDP growth assumptions, high deficit risks, and a heavy reliance on sectoral taxes and ad hoc measures, making budgeting and forecasting in the private sector extremely difficult.
The lack of EU funds left GDP growth largely stagnant, and despite promises to implement the “super milestones” required by the European Commission to unlock the funds, the government failed to do so. Magyar and his team have pledged to correct all these flaws, but time is limited to demonstrate both the capacity and the determination to follow this path, and there are challenges independent of knowledge and intent.
First, the protracted conflict in the Middle East (particularly any Iran-related escalation) is driving oil prices higher and, indirectly, inflation. This would limit the scope for interest rate cuts and for monetary policy easing. Any resulting surge in energy prices could also force the European Central Bank to tighten policy, potentially through a rate hike in June. If that happens, Hungarian interest rates would need to remain high (they are already at 6.25%) to prevent capital outflows and forint volatility. In addition, the new Hungarian government will need to convince the rating agencies of its fiscal competence.
Moody’s, S&P Global, and Fitch currently assign Hungary ratings just a notch or two above investment grade, all with negative outlooks. The first key event is expected around May 22, when Moody’s is due to review Hungary’s rating. While it has described the new government’s pro-European stance as “credit positive,” it has also emphasized the weak fiscal starting point and the risks associated with policy implementation.
The most likely outcome is a confirmation of the current rating with a continued negative outlook. However, the range of possibilities is wide: a shift to a stable outlook would signal growing confidence, whereas a downgrade to junk status would have significant repercussions.
S&P Global and Fitch also have existing negative outlooks, implying a high degree of sensitivity to developments in the coming weeks. Markets will interpret Moody’s decision as a leading indicator, and any deterioration in fiscal or external conditions could quickly be reflected in pricing, even in the absence of immediate rating actions.
Looking ahead to late June, two contrasting scenarios illustrate the range of potential outcomes. In the more favorable scenario, the government succeeds in establishing fiscal credibility early in its term. This would involve presenting a realistic budget revision, committing to a deficit reduction path below approximately 4% of GDP, and making tangible progress in securing EU funds.
Under these conditions, rating agencies would likely adopt a more constructive stance. Moody’s could revise its outlook to stable, while S&P Global and Fitch would be expected to maintain their ratings without immediate downgrade pressure. Financial markets would respond positively: government bond yields would decline, the forint would strengthen, and the central bank could begin to plan cautious rate cuts later in the summer.
The opposite scenario is more concerning and cannot be dismissed. If negotiations with the European Union stall, fiscal policy remains lax, and external conditions deteriorate, the consequences could be swift. In such a case, Moody’s could downgrade Hungary to below investment grade as early as its May review. This would increase the risk of similar actions from S&P Global and Fitch later in the year.
The immediate impact would likely include a sharp depreciation of the forint, a significant rise in government borrowing costs, and increased volatility in domestic financial markets. For monetary policy, this would eliminate any scope for easing. The MNB might even be forced to adopt a tighter stance to stabilize the currency and contain inflationary pressures. More broadly, a loss of investment-grade status would reduce Hungary’s attractiveness to institutional investors, many of whom are restricted from holding sub-investment-grade assets. This could amplify capital outflows and place additional strain on the economy.
This article was first published in the Budapest Business Journal print issue of May 8, 2026.
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