Hungary's central bank, the Magyar Nemzeti Bank (MNB), maintained its key interest rate at 6.25%, a decision that was widely anticipated by the market and consistent with the bank's prior guidance to adopt a wait-and-see approach until updated inflation projections are released in June [1]. The MNB cited increased inflationary risks stemming from the Iranian conflict and elevated global energy prices as reasons for its cautious stance [1].
Despite these risks, Commerzbank analyst Tatha Ghose notes that the Hungarian forint's significant appreciation—over 7% year-to-date, making it the top performer among Central and Eastern European currencies—has created room for potential rate cuts in the coming months [1]. The forint's rally is attributed to a decline in risk premia following the recent election outcome, which MNB chief Mihaly Varga described as an exogenous event [1]. Deputy Governor Zoltan Kurali and Varga both indicated that a stronger forint could enable rate cuts, contingent on updated inflation forecasts [1].
Underlying inflation indicators, particularly seasonally-adjusted month-on-month changes in core HICP, have shown notable improvement, leading the MNB to describe the inflation outlook as 'more moderate' despite ongoing concerns about global energy prices [1]. The forward market is currently pricing in a 25 basis point rate cut within the next three to six months, but Commerzbank expects a 50 basis point cut is more likely [1]. Ghose does not anticipate a negative impact on the exchange rate from a 50 basis point reduction in rates and forecasts the EUR/HUF to trade around the 360.0 level in the next quarter [1].
CONCLUSION
The MNB's decision to hold rates reflects caution amid external inflation risks, but the forint's strength and improved inflation dynamics have opened the door for rate cuts in the near future. Market participants and analysts are increasingly expecting a 25-50 basis point reduction, with limited downside seen for the currency. The outlook for the forint remains stable, with EUR/HUF expected to hover near 360 in the coming quarter.