Hungary’s central bank, the National Bank of Hungary (MNB), left the base rate on hold at 6.5% in a unanimous vote on the first rate-setting meeting of the year, and kept its hawkish forward guidance unchanged, in line with market projections. MNB governor Mihaly Varga said that early-year repricing will be closely monitored as it has a major impact on inflation outlook.

The Hungarian forint surged to its highest level against the greenback since February 2022, below 317, down 1.2% on the day, on news of the MNB rate decision and amid the dollar weakness. The EUR/HUF pair dipped below the 380 level for the first time since January 2024.

The forint has appreciated by more than 6% over the last 12 months, outperforming regional peers.

In the statement issued after the rate decision, policymakers stressed that risks surrounding the inflation outlook require cautious and patient monetary policy, while reaffirming the bank’s forward guidance.

MNB will continuously monitor incoming macroeconomic data and factors affecting the inflation trajectory, particularly early-year repricing and financial market stability, and will make base rate decisions on a meeting-by-meeting basis in a prudent, data-driven manner.

Given projections that inflation could fall below 3% in the coming months, this could pave the way for the first rate cuts, financial website Portfolio.hu writes. The markets are pricing in two rate cuts this year, according to its median forecast released before the meeting. The survey of 13 analysts shows that the base rate could drop to 6.0% by the end of 2025 and 5% a year later.

Policymakers also pointed to factors behind disinflation, including improving the external environment and the strong forint. Maintaining stability in the foreign exchange market is key to anchoring inflation expectations, they added.

After the meeting, MNB governor Mihaly Varga said that early-year repricing will be particularly important for assessing inflation expectations, with data on January inflation due on February 12. Household expectations, which are key for the medium term, remain stagnant, and firms foresee only moderate price increases.

MNB projects headline CPI dipping below the 3% inflation target in early 2026 from 3.3% in December, before rising toward the upper end of the tolerance band of 4% and the 3% target could be reached on a sustainable basis in H2 2027.

Service prices, household energy adjusted for consumption, and alcoholic beverages and tobacco continue to push inflation up, while global trends keep food price increases at a moderate level.

Varga stressed that the central bank does not have an exchange rate target, only an inflation target, and that the forint's low volatility is beneficial for the economy. He added that while the currency’s strength is already showing up in input costs, he expects it to gradually pass through to consumer prices.

On the gold reserve, he said there is currently no proposal to increase the 110-tonne stock, though he personally did not rule it out in the future.