Commerzbank’s Tatha Ghose notes the National Bank of Hungary paused cuts at 5.50% but lowered its medium‑term inflation target to 2.5% while simultaneously lifting 2027 inflation forecasts. He argues this combination should imply a more restrictive stance, yet MNB still talks about holding or cutting rates. With the Forint weak, he warns recovery will be limited until MNB clearly embraces rate‑hike options.

Lower target, higher inflation forecast

"Hungary's National Bank (MNB) paused its rate-cutting cycle this week, leaving the base rate unchanged at 5.50%, and followed this up with the Q3 Inflation Report which makes the monetary policy picture more awkward."

"MNB reduced its medium-term inflation target from 3.0% to 2.5%, with the existing 1pp tolerance band maintained, effective from 1 January 2028. In practical terms, though, lowering the target also lowers tolerance for inflation overshoots – this is not just a cosmetic change if MNB wants the new framework to be credible."

"At the same time that it lowered this tolerance, MNB also raised its inflation forecast for next year. The 2026 average inflation forecast was left unchanged at 1.8%, but the 2027 forecast was lifted sharply from 2.3% to 3.1%, reflecting higher global energy prices and the government’s decision to raise tobacco excise tax."

"Core inflation is now projected at 3.0% in 2027, while inflation is expected to peak around 3% in mid-2027 before disinflation resumes. This is faster than the new target – the new 2.5% target is expected to be reached sustainably only in mid-2028."

"This combination – lower target, higher forecast – ought to imply a more restrictive reaction function. Yet there is still no signal towards a possible need to hike rates, even while sentiment has turned in this direction in most other peer countries. In fact, Mihaly Varga clarified that the data-driven approach allows the MPC either to hold or cut rates in coming months – which is not reassuring as it excluded the tightening option."

"The forint is still weak since losing its post-election shine as the middle-east risk situation deteriorated – and it will not be able to recover until MNB embraces the hawkish possibility."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)