Hungary Holds Rates, Signals Cautious Path

Hungary’s central bank (MNB) kept its base rate unchanged at 6.5 percent, extending its pause to reinforce disinflation progress and safeguard against renewed external volatility. The decision underscores a preference for policy stability as headline CPI has eased markedly from its 2023 peak, even though underlying services inflation and global energy uncertainty still present upside risks.

The MNB’s communication stressed the importance of maintaining forint stability as a cornerstone of inflation expectations. The EURHUF exchange rate remains the central anchor for imported-price control, with policymakers wary of premature easing that could reignite pressure on the currency. Economic activity data suggest a shallow recovery—industrial output is stabilising and retail volumes have improved modestly—but investment remains subdued amid tight real-financing conditions and slow EU fund absorption.

Transmission remains uneven across sectors. Corporate lending is constrained by high collateral requirements and risk premiums, while household credit growth is muted due to fixed-rate mortgage saturation and stretched affordability. Liquidity operations by the MNB have compressed short-end rate volatility, while gradual reserve accumulation and selective FX smoothing continue to underpin stability.

Market reaction was neutral. The HUF held within recent trading ranges, the local rates curve flattened, and OIS pricing reflected diminished odds of near-term cuts. Externally, the dollar index (DXY) and Brent crude (CL=F) remain key drivers through commodity and global-rate channels.

Forward guidance points to a prolonged holding phase. The MNB will monitor the path of core inflation, wage settlements, and EU transfer flows before considering adjustments in 2026. A benign mix—steady EURHUF, easing services CPI, and revived investment—could open cautious space for cuts, while an energy or risk-off shock would extend the pause further.