Hungary Cuts Key Interest Rate as Inflation Falls

The National Bank of Hungary left its benchmark interest rate unchanged at 5.5% at its October 2026 meeting, as expected, after four rate cuts this year, the latest being a 25bps reduction in August from 5.75%. Annual inflation remains low, edging up to 1.3% in August from 1.2% in July, below the central bank’s June forecasts. At its September meeting, policymakers lowered the medium-term inflation target to 2.5±1%, to enter the monetary policy horizon from 2028, citing favorable inflation expectations. Average expected inflation was left unchanged for 2026, raised to 3.1% for 2027 and cut to 2.6% for 2028. The economic growth forecasts were lowered to 1.8% for 2026, 2.9% for 2027 and 2.8% for 2028, as extreme drought reduced agricultural output. Policymakers noted that global risks remain elevated, with geopolitical tensions continuing to pressure energy prices.

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.