MNB cuts again as muted inflation supports mini-easing cycle
The National Bank of Hungary cut its base rate by 25bp to 5.75%, delivering a second consecutive dose of policy loosening to extend the mini-easing cycle launched in June.
The move was fully expected, but the accompanying statement confirmed that policymakers still see room to lower rates further over the summer if favourable inflation trends persist.
The decision reflects a more benign inflation backdrop than the MNB anticipated last month. Headline inflation slowed to 1.7% YoY in the most recent June data, remaining below the Bank’s tolerance band for a second consecutive month. At the same time, the risk premium on Hungarian assets has continued to decline, preserving the Monetary Council’s room to ease while maintaining a positive real policy rate.
The statement and press conference largely validated Governor Mihály Varga’s earlier guidance.
The MNB still sees scope for further rate cuts over the coming months, but any continuation beyond the summer will depend on the September inflation report.
This keeps at least one additional 25bp reduction in play, while stopping short of committing to a fixed easing path. The MNB is clearly more comfortable with the inflation outlook, but its guidance remains conditional. The fiscal path, progress towards euro adoption, and developments in the Middle East will all influence Hungary’s risk assessment. Renewed energy-price pressures or a weaker HUF could quickly reduce the Bank’s room to manoeuvre.
The commitment to preserve a positive real rate also reinforces the case for gradualism.
A quarter-point pace allows the MNB to normalise policy without unnecessarily testing the FX channel that has helped contain imported inflation. It also signals that currency stability remains central to the Bank’s inflation strategy. For EURHUF, the decision itself should have limited impact given that it was fully anticipated. The more important signal is that the MNB still sees scope to cut again, but only while inflation, fiscal risks and HUF remain supportive. That guidance is modestly positive for EURHUF, as continued easing will gradually erode some of the forint’s carry advantage.
Therefore, our outlook on the forint remains unchanged. High real rates and a lower domestic risk premium should prevent a disorderly HUF slide.
Instead, a continued mini-easing cycle should favour a controlled rise in EURHUF rather than a sustained return to forint appreciation