Hungary's central bank holds base rate at 5.5% for a second month with inflation at 1.6%

The Monetary Council of the Magyar Nemzeti Bank (MNB) kept the central bank base rate at 5.50 per cent at its meeting on 20 October, the bank said in its press release. The overnight deposit rate stays at 4.50 per cent and the overnight collateralised lending rate at 6.50 per cent, one percentage point either side of the base rate, with effect from 21 October.

It was the second hold in a row. The council cut the rate by 25 basis points in July and again in August, taking it to 5.50 per cent, the lowest since May 2022, FocusEconomics reported; the MNB decree setting the 5.50 per cent rate took effect on 26 August. At the September meeting the council held the rate and lowered its inflation target to 2.5 per cent from 2028.

Inflation and the outlook

Consumer prices rose 1.6 per cent in the year to September, in line with the forecast in the bank's Inflation Report, according to the release. Rising fuel prices pushed the rate up while food prices continued to fall. Core inflation was 1.9 per cent, and month-on-month core price growth matched its average for 2017 to 2020. Household inflation expectations and firms' price expectations stayed moderate.

The council expects annual inflation to average 1.8 per cent in 2026 and 3.1 per cent in 2027, driven mainly by fuel prices and the change in tobacco excise duty, and said "inflation will decline to the central bank's 2.5 percent target by the end of the monetary policy horizon". With the base rate at 5.50 per cent, the gap over September's annual inflation is 3.9 percentage points, a Data Desk calculation from the release.

On activity, industrial production kept growing in August while retail sales growth slowed, business confidence rose slightly in September and consumer confidence stayed high by historical standards, the council said. Unemployment is low by international comparison and real wages are growing strongly, although nominal wage growth is slowing. A severe drought is cutting agricultural output and slowing growth this year, partly offset by higher industrial exports.

Risks the council named

Abroad, the council noted that inflation in the euro area and the United States is well above target, that high oil and gas prices linked to geopolitical tensions are adding to global inflation, and that long-term yields have risen further while the dollar has strengthened. Markets are pricing possible further increases by the European Central Bank, the Federal Reserve and the Bank of Japan after their September rises, it said. The US minutes point the same way, as our analysis of the Fed's record set out. The Romanian and Polish central banks kept their rates unchanged in October.

At home, the risk outlook depends mainly on the fiscal path, expectations about euro adoption and the external market environment, according to the release. The government's debt agency has raised its 2026 net financing need to HUF 7,110 billion on a wider deficit.

The council said keeping current rate conditions is necessary to reach the inflation target sustainably, and that it will continue to set the base rate in a "cautious and data-driven manner" while assessing the inflation outlook, global developments and Hungary's risk premia.

The next dates

The abridged minutes of the October meeting will be published at 2 p.m. on 4 November, the release said. The next rate-setting meeting is on 17 November, and at the 15 December meeting the council will discuss the final version of the next Inflation Report, according to the council's 2026 meeting calendar. From 2027 the council will hold eight rate-setting meetings a year instead of monthly ones, under the change it announced in September.