Hungary's central bank adopted a more aggressive monetary policy stance following a surge in inflation and concerns over the potential impact of geopolitical risks on the recession-affected economy.
The National Bank of Hungary kept its main interest rate at 6.5%, in line with the forecast of all 25 economists surveyed by Bloomberg.
This rate matches Romania’s, making it the highest key rate in the European Union.
In its statement following the decision, the central bank noted that “tight monetary conditions” were necessary after risks to inflation increased, with no realistic expectation of interest rate cuts in the near future, according to Deputy Governor Barnabas Virag, indicating a shift from previous guidance, which had suggested a “further pause” in rate cuts.
“This is a new situation in a qualitative sense,” Virag said. Although the central bank plans a “sustained pause” in the key rate, the reference to “tight” monetary conditions should be understood “in all its hues,” he added.
Headline inflation surged to an annual 4.6% in December, exceeding the central bank’s most recent forecast. Virag indicated that price growth is likely to rise further in January before a predicted return to disinflation starting in February, although it will begin from a higher-than-expected level.
He said the country must adhere to “disciplined anti-inflationary” policies to address rising prices.
Furthermore, the Forint's decline in recent months has contributed to inflation. The currency dropped 4.6% against the Euro in the last four months of the year, but has since recovered by approximately 0.9% in 2025.
The recent gains have led money market traders to start factoring in potential monetary easing, with expectations for a quarter-point reduction in the key rate within six months.
However, economists at OTP Bank Nyrt. noted on 15th January that the central bank is unlikely to have room for rate cuts this year due to persistent high price growth.
Unlike in previous months, there was no proposal for a rate cut on Tuesday, with all rate-setters unanimously agreeing to keep the rate unchanged, according to Virag.
Economy Minister Marton Nagy has been advocating for a looser monetary policy for months, aiming to stimulate growth after data revealed the economy had entered a recession in Q3. Prime Minister Viktor Orban is hoping for positive economic news as his party lags in polls ahead of parliamentary elections in just over a year.
There’s no indication that monetary policy will shift after March, when Mihaly Varga, Orban’s long-time finance minister, is set to become the next central bank head. During his confirmation hearing last month, Varga said his main focus would be on sustainably achieving the 3% inflation target.