Key facts
- Hungary's inflation has fallen below the central bank's 3% target.
- Risk premia on Hungarian assets have improved.
- A senior central banker suggested a lower interest rate may be needed for price stability.
- The central bank must remain cautious due to global market volatility and potential rate hikes by other major central banks.
- The bank will review its 3% medium-term inflation target in the summer.
A senior official from the Hungarian National Bank indicated that falling inflation and improved risk premia likely mean a lower interest rate is required to maintain price stability. Zoltan Kurali, Deputy Governor, stated that while data is favorable, caution is necessary due to global market volatility, including potential rate hikes by major central banks like the ECB, BoJ, and Fed. He emphasized the need for positive real rates in Hungary to achieve and sustain price stability. Economists polled by Reuters anticipate a cumulative 125 basis point cut in the base rate by the end of 2027. The bank's next policy meeting is scheduled for June 23, with the decision dependent on incoming data, inflation forecasts, and international uncertainties. Kurali also announced that the central bank will conduct a review of its 3% medium-term inflation target in the summer, with potential changes considered in one or two steps, aiming for analysis to be ready by autumn. The government, led by Prime Minister Peter Magyar, has put euro adoption back on the agenda, targeting 2030 for meeting the criteria.