No change in the base rate today - the MNB has become more pessimistic about the inflation outlook

HUNGARY - In Brief 24 Jun 2025 by Istvan Racz

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Today, the Monetary Council left the base rate unchanged at 6.5% and the interest rate corridor also an unchanged +/-1%-point around the base rate. After the meeting, governor Varga spoke about the main points of the Q2 inflation report, which is set to be presented in detail on Thursday this week. According to this, the MNB expect GDP growth at 0.8% this year, with stagnation in Q2 and 1.5-2% yoy growth in H2. Growth would accelerate further to 2.8% in 2026, against the government budget's original expectation of 2.5% in 2025 and 4.1% in 2026. Regarding inflation, the Bank expect 4.7% this year, in terms of the average headline rate, to be followed by 3.7% in 2026 and 3% in 2027. However, the quarterly breakdown of the MNB forecast is more telling than annual averages: On the chart above, the red line represents the new forecast, and the black line refers to the forecast presented in the Q1 inflation report, published in late March. So, the Bank do not expect inflation would return to the target range this year. They predict the headline rate hovering around the top end of the target range in H1 2026, and decrease further to the target range only in H2 2026, as earliest. Importantly, this forecast is based on the assumption that the existing administrative techniques applied by the government to depress CPI-inflation will remain in place throughout the whole of their forecast period. This does not come from their express opinion on this: it is just the reflection of their forecasting technique that they work with the existing framework of government policies, and they do not speculate on future changes of government policies. However, they estimate that these governme...