Hungary's central bank keeps its key interest rate at 5.5%: Inflation stands at 1.6%, and industrial output is growing by 8.7%

Hungary's central bank is keeping its key interest rate at 5.5%, even though inflation was only 1.6% in September. The Monetary Council of the Magyar Nemzeti Bank (MNB) made this decision on October 20. The deposit rate remains at 4.5%, and the lending rate at 6.5%. The key interest rate is thus 3.9 percentage points above the inflation rate.

Inflation Below Target, Fuel Prices Driving It Up

According to the Hungarian Central Statistical Office (KSH), inflation rose to 1.6% in September, up from 1.3% in August. Core inflation stood at 1.9%. Food prices were 1.3% lower than a year ago. Fuel prices rose by 6.9%, and services by 4.9%. Household energy prices fell by 4.0%, and natural gas prices by as much as 11.0%. ING economist Péter Virovácz called the increase “much more moderate” than expected (translated from English).

The MNB expects an annual average of 1.8% for 2026 and 3.1% for 2027. Starting January 1, 2028, an inflation target of 2.5% will apply. The MNB sees upward pressure from fuel prices and the higher tobacco tax. The Monetary Council justified the pause as follows: “Maintaining the current interest rate conditions is necessary to achieve the inflation target sustainably.” (MNB, October 20, translated from English)

Industry Grows, Drought Slows Growth

Industrial production rose by 8.7% year-over-year in August, the KSH reported on October 14. Compared to July, it rose by 1.0%. Vehicle manufacturing grew by 43%, and electronics by 30%. Industrial exports increased by 15.7% in volume. The food industry, on the other hand, contracted by 6.8%.

Retail sales in August were 2.4% higher than a year earlier. From January through August, the increase was 4.3%. Online retail grew by 12% in August. The MNB cites the drought as the reason for weaker agricultural yields, which will dampen growth in 2026. Higher industrial exports are partially offsetting this.

Central Bank Governor Mihály Varga describes the policy stance as “prudent and data-driven” (translated from English). He calls the government’s fiscal path “consistent” with joining the eurozone. The government is planning a deficit of 4.9% of GDP for 2027, down from more than 7% this year. Prime Minister Péter Magyar wants to introduce the euro “as soon as possible,” but does not specify a date.

German suppliers to the Hungarian auto and electronics industries are seeing rising order volumes. Production is growing, and exports are picking up. Loans in forint remain expensive, with a 5.5% benchmark interest rate. Investors in Hungary should consider financing in euros as long as there is no set date for joining the eurozone. Those supplying food to Hungary face a weak domestic industry and low consumer prices.

Sources: MNB press release dated October 20 (EN); KSH initial releases on inflation, industry, and retail (EN); report on statements by Varga and Magyar (EN)

SK, Frankfurt