Hungarian Forint Clouded by Central Bank Policy Signals

Key Moments

MNB Holds Rates but Offers No Forward Guidance on Hikes

Commerzbank strategist Tatha Ghose points out that the latest minutes from Hungary’s central bank, Magyar Nemzeti Bank (MNB), confirmed that policymakers unanimously agreed at the September meeting to end the cycle of interest rate cuts. However, the document did not include any discussion of possible future rate increases or renewed cuts.

According to Ghose, the minutes show that decision-makers took comfort from what they saw as low inflation, while noting that this was primarily reflected in year-on-year readings. At the same time, they highlighted risks linked to elevated and volatile energy prices, upcoming wage negotiations, and the broader medium-term inflation outlook.

Inflation Dynamics Raise Concerns

In the assessment cited by Ghose, September consumer price inflation in Hungary accelerated slightly to 1.6% year-on-year, mainly due to fuel prices. However, the year-on-year figure is described as misleading, as shorter-term price dynamics have shifted.

The analysis emphasizes that month-on-month consumer price indicators – including changes in MNB’s underlying core inflation measures – have moved away from earlier disinflation trends and are now re-accelerating toward the inflation target after a period in disinflationary territory. This shift is characterized as a reversal that warrants close attention.

Target Cut and Forecast Revision Without Hawkish Follow-Through

Ghose notes that MNB has recently made a notable adjustment to its inflation projections and policy framework. The central bank increased its inflation forecast for 2027 to 3.1%, while at the same time reducing its medium-term inflation target from 3.0% to 2.5%, effective from January 2028.

Lowering the target is seen as reducing the tolerance for inflation overshoots. Despite this, Ghose observes that MNB has not indicated any potential need for rate hikes, even as sentiment in many other countries has shifted toward a more hawkish stance.

Euro Adoption Talk Seen as Insufficient Support for HUF

Ghose argues that MNB is referencing potential euro adoption and participation in ERM II as a type of verbal intervention aimed at reassuring markets that deeper structural changes are forthcoming. In his view, this approach is not enough to bolster market confidence.

Ghose concludes that the Forint remains weak and is unlikely to stage a meaningful recovery until MNB adopts a substantially more hawkish policy stance and addresses what he describes as a contradiction between its inflation projections, its lower target, and the absence of any tightening signal.

“Hungary’s National Bank (MNB) published minutes confirming that the decision to stop rate cuts was unanimous at the September meeting. There was no discussion of rate cut or rate hike. Policymakers took comfort from (apparently) low inflation – ‘apparent’ because only the year-on-year measure is low – but stressed risks from higher and volatile energy prices, prospective wage settlements and the medium-term inflation outlook.”

“September CPI inflation accelerated slightly to 1.6%y/y, driven by fuel prices, but this year-on-year number is wholly misleading. Month-on-month CPI indicators, including the rate of change of MNB’s underlying core measures, are re-accelerating from disinflation territory back towards target after having turned disinflationary. This reversal deserves attention.”

“MNB recently raised its inflation forecast for 2027 sharply to 3.1%, while also reducing its medium-term inflation target from 3.0% to 2.5%, effective from January 2028. Lowering the target lowers tolerance for inflation overshoots too. Yet MNB still gives no signal towards a possible need to hike rates, even while sentiment has turned in this direction in most other countries.”

“MNB is using euro adoption and ERM II talk almost like a verbal intervention tool to reassure markets that deeper reforms are on the way. This will not suffice. The forint is still weak and will not recover until MNB has shifted to a much more hawkish stance.”