Key Moments
- The National Bank of Hungary (MNB) kept its base rate at 5.50% while revising its medium-term inflation target down to 2.5%.
- MNB raised its 2027 inflation forecast to 3.1% and now sees the new 2.5% target being reached on a sustained basis only by mid-2028.
- Commerzbank’s Tatha Ghose warns that the Forint’s recovery is likely to remain constrained until MNB clearly signals that rate hikes are an option.
Recalibrated Inflation Target and Policy Dilemma
Commerzbank analyst Tatha Ghose highlights that the National Bank of Hungary has halted its rate-cutting trajectory, keeping the base interest rate steady at 5.50%. At the same time, the central bank has adjusted its medium-term inflation objective, lowering the target from 3.0% to 2.5%, while maintaining the existing 1 percentage point tolerance band. The new target will take effect from 1 January 2028.
Ghose underscores that the reduction in the target is more than a symbolic move. A lower target narrows the room for accepting inflation overshoots, thereby raising the bar for policy credibility if the MNB intends to adhere firmly to the revised framework.
Updated Forecasts: Higher Inflation in 2027
The shift in the inflation target comes alongside a notable change in the MNB’s projections. While the average inflation forecast for 2026 remains at 1.8%, the central bank has significantly increased its 2027 forecast from 2.3% to 3.1%. According to Ghose, this revision reflects the impact of higher global energy prices and the government’s move to increase tobacco excise taxes.
Core inflation is now seen at 3.0% in 2027. Overall inflation is projected to peak at around 3% in mid-2027 before resuming a disinflationary path. Under these assumptions, the newly established 2.5% target is expected to be met on a sustainable basis only by mid-2028.
| Indicator | Previous | Current | Notes |
|---|---|---|---|
| Base rate | 5.50% | 5.50% | Rate-cutting cycle paused |
| Medium-term inflation target | 3.0% | 2.5% | 1pp tolerance band maintained, effective 1 January 2028 |
| 2026 average inflation forecast | 1.8% | 1.8% | Unchanged |
| 2027 inflation forecast | 2.3% | 3.1% | Raised, partly on energy and tobacco excise tax |
| 2027 core inflation projection | – | 3.0% | New projection |
| Timing of inflation peak | – | Around 3% in mid-2027 | Disinflation expected thereafter |
| Timing of sustainable 2.5% target | – | Mid-2028 | Based on current projections |
Policy Stance Seen as Insufficiently Hawkish
Ghose argues that the combination of a stricter inflation target and higher projected inflation should naturally lead to a more restrictive policy stance. However, he notes that the MNB is not signaling any inclination toward rate increases, even as market sentiment in several comparable economies has shifted toward considering tighter policy.
According to Ghose, “This combination – lower target, higher forecast – ought to imply a more restrictive reaction function. Yet there is still no signal towards a possible need to hike rates, even while sentiment has turned in this direction in most other peer countries. In fact, Mihaly Varga clarified that the data-driven approach allows the MPC either to hold or cut rates in coming months – which is not reassuring as it excluded the tightening option.”
Forint Weakness and Market Implications
The Forint has remained under pressure after losing the strength it displayed following the election. Ghose attributes part of this weakness to the deterioration in the risk environment related to the Middle East.
He cautions that the currency’s ability to rebound is constrained as long as investors do not see the MNB as open to a more hawkish path. As he concludes, “The forint is still weak since losing its post-election shine as the middle-east risk situation deteriorated – and it will not be able to recover until MNB embraces the hawkish possibility.”
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