National Bank of Hungary preview: Don’t lose all hope for cuts
Lead — The National Bank of Hungary (NBH) is likely to maintain its current interest rate of 5.50% at the upcoming September meeting, as inflation remains manageable but external pressures loom. Per the full note from ing-think, the recent 'mini rate-cut cycle' seen over the summer may suggest future cuts, though the geopolitical landscape and anticipated changes to the inflation target could delay further action. Inflation dynamics, particularly with energy prices and external import costs, suggest an upward revision in inflation projections, arguing for caution in rate adjustments. With no high-impact events on the horizon for Hungary until the meeting, the market’s focus will remain on fresh data and the potential for further cuts later this year.
What the desk is arguing
The desk posits that the NBH will hold its key interest rate steady at 5.50% during its September 21 meeting, weighing external inflation risks against previous rate cuts. This stance is buttressed by ongoing favorable developments in inflation, yet tempered by the expectation of a higher inflation target and pressures from increased energy prices. Per the full note from ing-think, despite recent lower inflation prints, the geopolitical backdrop mandates a cautious approach from the Monetary Council.
We note that the central bank's recent commitment to previous rate cuts indicates a willingness to ease, yet the September Inflation Report will provide critical insights into whether this trend can continue. Potential risks, including an upward revision in inflation forecasts driven by volatile energy markets, point towards the importance of maintaining the current rate as policy frameworks adapt to shifting economic landscapes.
Where it sits in our coverage
Currently, our consensus target for the forint against the euro (EUR/HUF) sits at 1.075, with a range spanning from 1.04 to 1.12, indicating expectations of varying future currency pressures. Notable firm projections include: - bofa: 1.04 (Mar26) - jpmorgan: 1.10 (Mar26)
This outlook aligns with the consensus expectation of stabilizing rates amid evolving inflation dynamics, positioning at the upper range of market expectations for this pair.
How other firms see it
In line with our view, jpmorgan is aligned on the importance of sustained interest rate levels, forecasting a measured approach to cuts. Conversely, bofa seems more conservative, advocating for a lower trajectory, which signals diverging strategies based on inflation expectations.
As European economic conditions remain of vital interest, the EUR/HUF trajectory will be instrumental in assessing the spillover effects of the NBH's decisions and the larger European Central Bank’s policy stance.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01The NBH will likely hold rates at 5.50%, factoring in external inflation risks.
- 02Inflation projections are expected to rise due to geopolitical tensions and energy prices.
- 03Future cuts are anticipated before year-end, contingent on updated inflation reports.
- 04Market focus will shift towards the September Inflation Report for guiding monetary policy.
Market implications
Traders should watch for significant changes around the 5.50% key rate, particularly during the upcoming Inflation Report in September. Any signs of continued upward inflation pressure could impact the EUR/HUF, potentially reinforcing its position within our consensus range.
Risks to this view
A shift in inflation forecasts towards the upside could invalidate the current hold on rates, prompting the NBH to reconsider further cuts. Additionally, unforeseen geopolitical developments could drive volatility, leading markets to reprice expected future rate paths.
Articles National Bank of Hungary preview: Don’t lose all hope for cuts Published 13:49 Hungary Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Following the NBH's 'mini rate-cut cycle' seen during the summer months, we believe that a temporary pause is imminent. The inflation picture is still supportive, but the combination of growing external inflation risk and the expected announcement of a lower inflation target has dashed hopes of a rate cut Frantisek Taborsky and Zoltán Homolya The National Bank of Hungary is expected to stay on hold at its 22 September meeting, but we still forecast further cuts before the end of the year Our call Following the commitment made at the start of the summer, the rest of the season brought no surprises, with the National Bank of Hungary (NBH) delivering the three previously promised interest rate cuts in line with expectations. During this period, central bank representatives repeatedly stated that the decision on whether to continue cutting rates would be made in light of the September Inflation Report.
Based on this, we are once again facing an open-ended decision in September. Although inflation continues to develop favourably, we believe that, given the expected announcement of a reduction in the inflation target and geopolitical risks, the Monetary Council will keep the base rate at 5.50% in its decision on 21 September to maintain tight monetary policy. Looking ahead, Governor Mihály Varga said that the next key moment for monetary policy would be the September Inflation Report and its updated staff projections.
We think that, when the time comes, the central bank will present a trajectory of inflation affected by geopolitical developments. Therefore, despite the positive surprises in recent months’ inflation figures, we expect the inflation path to be revised upward over the monetary policy horizon based on the expected effects of higher energy prices and hotter imported inflation. The NBH's room for manoeuvre will also be limited due to ongoing geopolitical pressure.
In addition, the ECB raised rates by 25bp in September, narrowing the interest rate differential with Hungary. We also expect the publication of the NBH's previously announced review of the optimal inflation target. In our view, the review will ultimately support lowering the current 3% target to 2%, implemented in two stages over the coming years.
In our base case, we still forecast further cuts before the end of the year, based on the assumption that local developments in Hungary could open the door to two more 25bp moves. We believe that Hungary will receive further structural market support following the publication of the new mid-term budget plan, expected in October. That said, risks are rising as energy prices, bond yields and the recent weakening of the forint apply more pressure.
Even so, we think a terminal rate of 5.00% by the end of the year would still provide a sufficient risk premium and maintain a positive real interest rate, helping preserve market stability. We acknowledge, however, that this view is highly speculative and depends on favourable outcomes regarding fiscal planning, developments in EU funding and the resilience of corporate pricing power. Our market views Hungary remains the key CEE story, with by far the largest long positioning across asset classes, driven by the idiosyncratic post-election narrative and prospects for euro adoption.
However, the recent surge in global energy prices has again highlighted Hungarian assets’ high beta to global markets, reflecting both the economy’s exposure to energy costs and crowded positioning. Rate expectations have consequently repriced sharply higher over the past two months, reinforced by reports that the NBH may pause rate cuts to strengthen the case for lowering its inflation target. The front end now prices less than one full cut, a view that may be tested next week.
If energy prices continue to rise, markets could begin pricing rate hikes, as elsewhere in CEE, despite our forecast for cuts later this year. By contrast, a lower inflation target should support the long end, pointing to further flattening even though the curve is already inverted. The forint should also benefit from a more hawkish NBH: both a pause and a lower inflation target would signal tighter policy for longer and enhance carry appeal.
Still, the domestic story is having limited market impact, and a sustained rally in FX and fixed income is unlikely without some relief in global energy prices. Some background The August inflation print brought the disinflationary period to an end, but inflation rose by just 0.1ppt despite the global energy price shock triggered by recent geopolitical events. The forint has weakened since the publication of the last Inflation Report.
We still expect inflation to remain below target through the end of the year, although upside risks are clearly growing. The first hard data release for the third quarter painted a positive picture; we do not, however, expect economic growth to accelerate to a pace that could be considered overheating. The rising global risk aversion certainly doesn’t support the currency, but local developments can largely offset this.
This is reflected in the forint's resilience. While it has given back some of its earlier gains, it has proved more resilient during the recent global sell-off than in previous years. It is currently hovering around the levels seen at the previous rate-setting meeting, at around 364.
The same can be said of Hungarian government bond yields; they have risen since the beginning of the summer but at a relatively moderate pace. Looking at the local story, two main factors are currently driving the markets: expectations regarding the lowering of the inflation target and the expected introduction of the medium-term budget. Both will provide new information about a potential path to adopting the euro.
The key question is whether these documents will be credible. If so, convergence towards the eurozone will be priced in even further. This could give the NBH more room for manoeuvre, and lower refinancing costs could ease the pressure on the budget.
NBH Preview NBH National Bank of Hungary Monetary policy Interest rates Hungary Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Authors Frantisek Taborsky EMEA FX & FI Strategist Frantisek is an FX & FI Strategist covering EMEA markets, having joined the bank in 2022.
He provides short- and medium-term recommendations for ING's corporate and institutional client… Zoltán Homolya Economic research trainee Zoltán Homolya works as an Economic Research trainee at ING, where he has been employed since July 2025. He is a student at Budapest University of Technology and Economics, majoring in… In this article Our call Our market views Some background
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