Hungary's central bank lowers inflation target to 2.5% from 2028 and holds rate at 5.5%
The Monetary Council voted 11-0 to keep the base rate at 5.50% and will cut its policy meetings to eight a year from 2027, its statements and minutes show.
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Hungary's central bank will lower its medium-term inflation target to 2.5 per cent with effect from 1 January 2028, and its rate-setters voted unanimously to keep the base rate at 5.50 per cent while they made the change, according to documents published by the Magyar Nemzeti Bank (MNB) on 22 September and 7 October.
The Monetary Council set the new target as a 2.5 per cent rise in the consumer price index published by the Hungarian Central Statistical Office and kept the symmetric tolerance band of plus or minus one percentage point, the council said in a statement. The change takes effect over the monetary policy horizon. The council also decided to hold eight policy meetings a year from 2027, plus eight non-policy meetings. Under the current arrangement members consider interest rates at the second scheduled meeting each month, according to the minutes. The publication schedule of the Inflation Report is unchanged.
Why the target is coming down
The council said a multi-step review launched at the start of the year found that the main elements of the framework matched international practice, but that the level of the target was higher than in the euro area or the region. Real economic development and the price level have been approaching the euro-area average over the past decade, and further price-level convergence is expected mainly in services, according to the statement.
A gap of 0.5 percentage points between the targets of the European Central Bank and the MNB leaves room for convergence to continue through a smaller inflation surplus without placing an excessive burden on the real economy in the short term, the council said. It added that a lower target should mean lower nominal interest rates and financing costs over time, and that the step "also supports meeting the requirements for euro adoption".
The council pointed to lower inflation, a decline in domestic risk premia and continued stability in the foreign exchange market as conditions that make the move possible. Household inflation expectations have fallen to around the levels seen during earlier periods of price stability, it said.
The rate decision and the forecasts
At the same meeting the council left the base rate at 5.50 per cent, the overnight deposit rate at 4.50 per cent and the overnight collateralised lending rate at 6.50 per cent, effective from 23 September, according to the rate decision. Annual inflation was 1.3 per cent in August, below analysts' expectations and the June Inflation Report projection, and core inflation was 2 per cent.
The September projection has consumer prices rising 1.8 per cent in 2026 and 3.1 per cent in 2027 before inflation returns to the 2.5 per cent target by the end of the policy horizon. The 2027 forecast was raised because of higher energy prices and a change to the excise duty on tobacco products. Gross domestic product is projected to grow 1.8 per cent in 2026, 2.9 per cent in 2027 and 2.8 per cent in 2028, after 1.7 per cent growth in the second quarter of 2026, the MNB said. Drought has cut agricultural output this year.
The external backdrop has changed. The MNB noted that in September the European Central Bank, the Federal Reserve and the Bank of Japan each raised policy rates by 25 basis points, that market pricing pointed to further increases from all three, and that the Czech and Polish central banks kept their rates unchanged, according to the press release.
What the minutes show
The abridged minutes, released on 7 October, show the council discussed a single option, holding the base rate at 5.50 per cent, and that all 11 members present voted for it. Several members said inflation was moderate and risk premia stable, and noted that Hungary's real interest rate was still above regional levels. Others pointed out that forward-looking real rates in developed economies were trending upwards.
Members flagged high and volatile oil prices and a significant rise in European gas prices as inflation risks, and several stressed that year-end wage negotiations would be important for the path of prices. Several also highlighted that, under the September Inflation Report, inflation would temporarily rise above 3 per cent in 2027, according to the minutes.
The council said the new 2.5 per cent target was already taken into account in its September decision. Members agreed that the country's risk assessment would be driven mainly by expectations about the fiscal path, euro adoption and the external market environment, and several said uncertainty over the fiscal outlook could ease in the autumn. The decision makers favoured a return to a data-driven approach, with decisions on the base rate taken in a cautious manner, the minutes show.
For banks and bond investors, the practical changes come in two steps: a slower meeting calendar from 2027 and a lower inflation anchor from 2028. The council said the target-setting horizon gives economic agents enough time to adjust to the new level.