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2026-05-26 21:52:08
[Hungary Keeps Benchmark Interest Rate Unchanged at 6.25%, Inflation Outlook Improves Significantly but Energy Risks Remain] ⑴ The Hungarian central bank kept its benchmark interest rate unchanged at 6.25% on Tuesday, in line with market expectations. Previously, rising global energy prices and domestic fiscal risks had kept the central bank cautious, but the deflationary effect of a stronger forint improved the inflation outlook. ⑵ The central bank implemented its first 25 basis point rate cut since the end of 2024 in February, when the year-to-date price increase slowed to 2.1%, below the policy target of 3%. However, the Middle East war and global market volatility subsequently made the central bank more cautious. ⑶ The central bank's monetary policy committee stated that the inflation outlook has improved significantly, but the uncertain global economic environment requires a cautious approach to monetary policy. All factors affecting the inflation path will be fully assessed in the June inflation report. ⑷ The governor stated that two scenarios were discussed at Tuesday's meeting but did not elaborate on the second option. Analysts pointed out that while many emerging market central banks are considering raising interest rates or remaining on hold, the Hungarian context is indeed more favorable for monetary easing. (5) The analyst expects the window for interest rate cuts to open unless energy prices surge again, and anticipates two 25-basis-point cuts this year to bring the benchmark interest rate down to 5.75%. (6) The new government has put the adoption of the euro and the unfreezing of EU funds on the agenda, boosting investor sentiment in Hungarian assets, but it also faces the budget deficit problem left by its predecessor, which may approach 7% of economic output for the whole year.
