Central Bank cuts rates in February

Base rate cut to near four-year low: At its meeting on 24 February, the Central Bank of Hungary (MNB) decided to reduce its base rate by 25 basis points to 6.25%. This was the first change to the policy rate since September 2024 and brought the base rate to its lowest level in nearly four years. Markets had priced in the cut.

Low inflation facilitates rate cut: Subdued inflation gave the MNB room to loosen its policy stance and support domestic demand. In January, headline inflation eased to 2.0% year on year, hitting the floor of the Central Bank’s 2.0–4.0% target range and coming in at a near eight-year low. Meanwhile, GDP growth was lackluster in Q4 despite election-related fiscal stimulus.

MNB to cut rates again this year: In its forward guidance, the MNB stressed the importance of maintaining positive real interest rates to achieve the inflation target sustainably. Most of our panelists expect a further 25–175 basis points of cuts by the end of 2026, as inflation should average within target, while GDP growth is set to remain under pressure from volatile investor sentiment, persistent consumer pessimism and political uncertainty ahead of parliamentary elections in April. The MNB should reconvene on 24 March.

Panelist insight: ING analysts said: “While we cannot say for certain, based on the current situation, we anticipate another 25bp rate cut in March. […] Based on our inflation forecasts following the release of the January figures, which predict a further downtick in February's headline inflation to 1.5% year-on-year, only a few events could derail the 'double-dip'. One of these would be an unordered move by the forint due to a geopolitical and/or energy price-related shock. The trickier part comes with the general election and the related possibility of FX volatility, which could be too great for continued easing. […] Overall, we forecast a further 50–75bp of easing in 2026, with the base rate standing at 5.50–5.75% by the end of the year.”

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