Hungary's consumer price index (CPI) inflation slowed significantly to 1.8% year-on-year in May, down from 2.1% in April, and well below consensus forecasts of 2.2% year-on-year. This figure places inflation just below the lower bound of the National Bank of Hungary's (MNB) tolerance range, with underlying measures remaining within target, according to Commerzbank’s Tatha Ghose [1]. Some of the downside surprise in inflation was attributed to supply factors, including administrative price caps on fuel and previous government measures. The report also notes that recent increases in global energy and commodity prices, such as those stemming from the Iran war, have not had a significant pro-inflationary impact [1].
MNB governor Mihaly Varga confirmed that the Monetary Policy Council (MPC) discussed a rate cut on 26 May, but ultimately decided to maintain the benchmark rate at 6.25% in a non-unanimous decision. Varga acknowledged that the central bank now perceives a more benign inflation path and recognizes that the change in the country's risk premium has made room for lower rates [1].
Commerzbank argues that the weaker inflation data strengthens the case for monetary easing and effectively clears the path for a potential rate cut at the 23 June policy meeting. With inflation at around 2% year-on-year and the key interest rate at 6.25%, Hungary currently has a high real interest rate, which is supporting the forint [1].
Looking ahead, Commerzbank does not expect a negative impact on the exchange rate from a rate cut, projecting EUR/HUF to trade broadly stable around 355–360 over the coming quarter [1].
CONCLUSION
Hungary's lower-than-expected inflation has increased the likelihood of a rate cut at the MNB's June meeting, with analysts expecting the forint to remain stable. The central bank's current stance and benign inflation outlook suggest room for monetary easing without significant currency risk.