Inflation Target Falls to 2.5%: Hungary's Central Bank Holds Rates at 5.50%

Hungary’s central bank is lowering its inflation target from 3% to 2.5% effective January 1, 2028. On September 22, the Monetary Policy Council of the Magyar Nemzeti Bank left the key interest rate at 5.50%. The boundaries of the interest rate corridor remained unchanged: the deposit facility stands at 4.50% and the lending facility at 6.50%. The rates have been in effect since September 23.

This brings a brief period of easing to an end for now. Over the summer, the Council cut the key interest rate in three steps by a total of 75 basis points. The last cut took place in August.

Prices are barely rising; the central bank remains cautious

In August, inflation stood at 1.3%. It remained below analysts’ expectations and below the forecast in the June inflation report. Core inflation was 2.0%. Food prices rose more slowly, while prices for industrial goods and market-determined services increased.

The central bank expects an annual average of 1.8% for 2026. For 2027, it is raising its forecast to 3.1%. It cites higher energy prices and a change in the excise tax on tobacco products as reasons. By the end of the monetary policy horizon, inflation is expected to fall to the new target of 2.5%.

The international environment argues against further action. In September, the European Central Bank, the Federal Reserve, and the Bank of Japan each raised their key interest rates by 25 basis points. The Czech and Polish central banks held rates steady. Global oil prices and European gas prices rose.

“In the assessment of the Monetary Policy Council, maintaining the current interest rate conditions is necessary to achieve the inflation target sustainably,” states the Magyar Nemzeti Bank’s press release dated September 22.

Drought Slows Growth, Industry Provides Support

Gross domestic product grew by 1.7% in the second quarter. Growth was driven by the services sector and industrial production, while agriculture acted as a drag. In July, retail sales and industrial production increased.

The central bank expects growth of 1.8% for 2026, 2.9% for 2027, and 2.8% for 2028. The current account is close to balance this year and is expected to show a slight surplus thereafter. The drought is weighing on agricultural output, but higher industrial exports are partially offsetting this.

For German investors, this means expensive forint-denominated financing amid very low inflation. The spread between the key interest rate and inflation stands at 4.2 percentage points. Those financing plants in Hungary in the local currency pay significantly more than in the eurozone. On the other hand, the exchange rate remains predictable, and the target of 2.5% starting in 2028 brings convergence with the eurozone closer. Suppliers to the automotive and battery industries should align their investment plans with this roadmap.

Sources: Magyar Nemzeti Bank, Monetary Policy Council statement dated September 22, 2026 (HU); MTI (HU).

SK, Frankfurt