MNB base rate down by another 25bps today, future path remains uncertain

HUNGARY - In Brief 25 Aug 2026 by Istvan Racz
Today's 25bps reduction of the MNB base rate, to 5.5%, was exactly as expected, given the MNB's own forecast of late June, and the latest excellent CPI-inflation reading for July. However, the rate reduction 'mini-cycle', as Governor Varga called it two months ago, is now over, and Mr. Varga himself is only saying now that a decision on the further path of the base rate will be assessed at the next update of the MNB's inflation report in late September, depending on the path of fiscal policy, euro-convergence expectations and the global market environment.Starting at the end, the known facts and trends of the global environment do not seem to be supportive to further rate cuts. In this regard, Mr. Varga referred to the Middle East conflict, energy markets, and the current unfavourable yield and central bank policy situation and outlook.On euro-convergence, the government has once again affirmed its commitment to complete that by 2030, but existing fiscal plans and measures are providing hardly any support to that process at this moment. It was revealed yesterday that the amendment of the 2026 budget will not include any detail in that regard. The presentation of the previously promised macro framework of euro convergence seems to be set to arrive only in October, together with the draft budget for 2027.Importantly, Mr. Varga has said today that the MNB has been working on a review of its inflation target since early this year. The MNB's inflation target is currently the highest in the EU, he added. The result of that review will be known at some point before end-2026. We believe that a revision of the inflation target can only happen when the government has already pre...

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