Fall in Hungary's inflation, risk premia likely lowered required rate level, central banker says

• Inflation ran at 1.8% in the first four months of 2026, well below the bank's 3.8% forecast, with the base rate currently at 6.25% after cuts from the EU's highest level
• One policymaker proposed a rate cut at the May meeting, and economists project 125 basis points of cuts by end-2027, though the bank insists on maintaining positive real interest rates
• The central bank will review its 3% inflation target this summer in coordination with the new government's goal to meet euro adoption criteria by 2030

Summary: Hungary Central Bank Signals Potential Rate Cuts Amid Falling Inflation

Hungary's central bank is considering lowering interest rates as inflation drops significantly below target, though policymakers remain cautious amid global volatility, according to Deputy Governor Zoltan Kurali.

Key Data Points:

• Current base rate: 6.25% (held since February)
• Inflation: 1.8% year-to-date through April 2026, well below the 3% target
• May inflation forecast: 2.3% (versus earlier projection of 3.8% average for full year)
• Economists expect 125 basis points in cumulative rate cuts by end-2027
• Next policy meeting: June 23

Policy Developments:

One policymaker proposed a rate cut at the May meeting, marking the first such discussion since February. Kurali acknowledged that improved inflation and reduced risk premia "might mean the required rate to achieve price stability is lower," though he backed holding rates steady last month.

Complicating Factors:

• Volatility in long-end yields and energy prices
• Iran war impact on global markets
• Major central banks (ECB, BOJ, Fed) potentially raising rates
• Bank committed to maintaining positive real interest rates

Political Context:

New Prime Minister Peter Magyar's government has prioritized euro adoption, targeting 2030 for meeting criteria. A recent deal unlocked billions in EU funds, boosting investor sentiment toward Hungarian assets.

Forward Outlook:

The central bank will launch a review of its 3% inflation target this summer, examining potential alignment with eurozone levels. Kurali emphasized decisions remain data-dependent and cautioned against predicting rate-cut cycles given international uncertainty, though he characterized himself as "always a cautious mover."