Hungary's Varga: Real interest rate supports HUF, CPI goal

Hungary's Varga: Real interest rate supports HUF, CPI goal

Hungary’s central bank, under Governor Mihály Varga, maintained a cautious stance in its recent monetary policy decisions, emphasizing the role of real interest rates in supporting the forint (HUF) and advancing its inflation target. At the February 2026 meeting, the National Bank of Hungary (MNB) reduced the key interest rate by 25 basis points to 6.25%, marking the first cut in nearly 18 months after annual headline inflation fell to 2.1% in January—below the 3% target for the first time in five years. This adjustment followed downward revisions to inflation projections for 2025–2026, reflecting improved domestic and global conditions, including moderated services price growth and stronger investor sentiment.

Varga highlighted that the central bank’s forward guidance now prioritizes a “data-driven, meeting-by-meeting” approach, signaling potential further easing if inflation continues to undershoot expectations. The MNB’s inflation targeting framework, established since 2001, remains central to its strategy, with the council balancing short-term disinflationary pressures against longer-term risks, such as household inflation expectations and geopolitical uncertainties according to its policy framework.

The rate cut supported the forint’s resilience, with EUR/HUF trading near 379.1 post-decision, as tighter monetary policy had previously anchored the currency to a two-year high. However, the MNB cautioned that upside risks to inflation—such as excise duty changes and exchange rate fluctuations—necessitate disciplined policy to ensure sustained progress toward the 3% target. With the fiscal deficit projected to decline and external imbalances narrowing, the central bank aims to preserve financial stability while fostering a return to balanced growth as reported in financial analysis.

The Monetary Council’s minutes, to be released in March, will provide further clarity on the trajectory of rate cuts, which markets now price at 60 basis points by 2027 according to market expectations.