Hungary Holds Rate Unchanged at 6.5%

The National Bank of Hungary left its benchmark interest rate unchanged at 5.5% at its September 2026 meeting, as expected. The decision followed four rate cuts this year and came amid elevated global risks, with geopolitical tensions continuing to pressure energy prices. Headline inflation edged up to 1.3% in August, although the reading was below June's inflation forecasts. In turn, policymakers lowered the medium-term inflation target to 2.5±1%, which will enter the monetary policy horizon starting 2028, citing favorable inflation expectations and trends. Looking ahead, the average expected inflation remains unchanged for 2026, while the forecast was raised for 2027 to 3.1% and lowered for 2028 to 2.6%. Meanwhile, the economic growth forecast was lowered for 2026, 2027 and 2028, to 1.8%, 2.9% and 2.8%, respectively, amid a declining agricultural output due to extreme drought.

The National Bank of Hungary lowered its base rate by 25bps to 5.5% after its August 2026 meeting, as expected by markets, to mark a fourth rate cut this year. The further reduction in interest rates was aligned with the soft inflationary backdrop in the Hungarian economy. The headline rate fell to 1.2% in July and the core inflation rate eased to 1.9%, despite the recent increase in most of Hungary's trading partners following the outbreak of war in the Middle East. In turn, the forint remained at stronger levels than the average since 2022, holding the increases since Magyar was elected Prime Minister, consolidating the leeway for the NBU to attend to the economy.

The National Bank of Hungary lowered its base rate by 25 basis points to 5.75% at its July 2026 meeting, in line with market expectations and extending its easing cycle. The decision came as annual inflation eased to 1.7% in June from 1.8% in May, remaining below the central bank's 2%-4% target range for a second consecutive month, providing room for further monetary easing. Governor Mihály Varga indicated that one additional rate cut could be delivered over the summer before the central bank reassesses the outlook alongside updated macroeconomic projections in September. However, the forint has weakened by nearly 2% against the euro since the previous meeting amid renewed geopolitical tensions, increasing upside risks to inflation through higher energy import costs. Looking ahead, the domestic risk assessment is influenced by expectations regarding the fiscal path and the introduction of the euro, as well as developments in the Middle East conflict.