Likely base rate cut in June, further major progress towards meeting conditions for EU funds

HUNGARY - In Brief 10 Jun 2026 by Istvan Racz

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Our regular Readers are most probably fully aware that we have been hesitating for long to join the rapidly increasing camp of macro analysts who predict an early reduction of the MNB base rate. However, yesterday's release of the CPI-inflation data for May has changed our view in this regard.Analysts expected a further small increase to 2.2% yoy, a one decimal point rise from April, largely in line with the MNB's standing forecast of a rising trend of the headline rate in the rest of 2026. However, the actual number was only 1.8% yoy, on zero inflation in May alone, and the core rate as well as the non-fuel inflation rate both fell to exactly 2% yoy, from April's 2.2% yoy and 2.4% yoy, respectively.Sources: KSH, own estimates Quite clearly, this data has knocked the actuals off the ruling expectation of substantially rising inflation in the rest of this year. The MNB's late-March forecast of the headline rate rising above 5% yoy by Q4 now seems especially outdated, and it is likely to be revised downwards significantly in the next inflation report, which is due on June 23. For sure, the late-March forecast preceded the major post-election strengthening by the forint, which must have been the key factor behind the most recent downturn of the headline rate, especially as that downturn was pretty much broad-based within the whole CPI basket. Also for sure, failure to reach peace in the Middle East and a potential energy market debacle could make prospects look much worse later on, but for now, it can be only treated as an important risk factor, rather than part of the main scenario.On this basis, we are joining the camp of our would-be base-rate-cutter colleagues, expect...