The National Bank of Hungary lowered its benchmark interest rate by 25 basis points on Tuesday, the third cut this year. The key rate now stands at 5.25 percent, the lowest level since May 2022. Analysts expect further easing in September, though rising fuel prices may put upward pressure on inflation.
The Hungarian central bank delivered the expected reduction despite recent volatility in global energy markets. The move follows two earlier cuts in 2026 that together have brought the rate down by a total of 135 basis points. The decision was based on a continued decline in consumer price growth. Inflation measured 2.1 percent in April, 1.8 percent in May and 1.7 percent in June, all well below the central bank’s 3 percent target with a tolerance band of plus/minus one percentage point.
Market analysts, including those at PKO Bank Polski, had recently predicted that another cut could come as early as September. However, a sharp rally in crude oil prices in July has led to higher gasoline prices at the pump and could eventually feed into broader inflation figures. The central bank’s communication did not mention any change to its forward guidance, leaving the door open for further easing if inflation remains subdued.
Third consecutive rate cut
The latest reduction, announced on July 21, followed a similar 25-basis-point cut in June. The bank’s monetary policy council voted to lower the base rate to 5.25 percent, citing the sustained disinflation trend and a still-weak domestic demand environment. The move was widely expected by economists, with most forecasting a steady path of cuts through the end of the year.
The central bank’s decision had little impact on the forint, which remained stable against major currencies. The Hungarian currency traded at 360.70 per euro, 315.95 per US dollar and 83.75 per Polish zloty shortly after the announcement. The calm reaction suggests that markets had fully priced in the move and are now focused on the outlook for further easing.
Inflation outlook and fuel price risk
While current inflation data supports further monetary loosening, the recent spike in global oil prices poses a threat. Brent crude has risen by more than 10 percent in July, pushing up fuel costs across Europe. In Hungary, gasoline prices have increased by around 5 percent in the past two weeks, raising concerns that the disinflation trend could stall or reverse.
Analysts caution that if the oil rally continues, it could delay the next rate cut or lead to a more cautious approach from the central bank. Nevertheless, most forecasters still expect the base rate to fall to around 5 percent by the end of 2026. The government has also signaled support for further easing to boost economic growth, which has been sluggish since the post-pandemic recovery.
The yield on Hungary’s 10-year government bonds edged down to 5.49 percent after the rate decision, reflecting improved investor sentiment. Foreign investor demand for Hungarian debt has increased in recent months as the country’s risk premium narrowed compared to peers in Central Europe.
Źródło: wnp.pl, Fot. Wikimedia Commons / Random photos 1989 (CC 4.0 BY-SA)
