Central Bank leaves rates unchanged in January

Bank stands pat for 16th consecutive meeting: At its meeting on 27 January, the Central Bank (MNB) left the base rate unchanged at 6.50%, broadly in line with market expectations. The base rate has stood at its current level for 16 consecutive meetings since September 2024.

Bank plays balancing game between low inflation and high inflation expectations: The MNB ruled out a rate hike, as inflation fell to a 14-month low in December, inching closer to the midpoint of the 2.0–4.0% target and remaining within the Bank’s tolerance range for the second consecutive month. Moreover, the labor market loosened in December. On the flipside, the Bank did not cut rates because household inflation expectations remained elevated and it expects consumption to support growth amid rising real wages and government stimulus.

Rates to end 2026 at five-year low: Most of our panelists expect the MNB to cut the base rate by 25–50 basis points in Q1 before lowering it further by December. As a result, the base rate is forecast at a five-year low at end-2026 as inflation should decline and the Bank should focus on reigniting the sluggish domestic economy. That said, a minority sees rates on hold this year. The strength of GDP growth and the forint are key factors to watch. The MNB should reconvene on 24 February.

Panelist insight: ING analysts commented on the outlook: “Although the chance of a rate cut in February is increasing according to market pricing, a rate cut is far from fully priced in, and the central bank has ample room to pause in February. At the same time, the stronger forint, also supported by a weaker US dollar and hopes for a Ukraine peace deal, clearly shows that rate cuts will not be such a problem for the currency.”

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