Zoltan Kurali, Deputy Governor of the National Bank of Hungary (MNB), indicated that another interest rate cut could occur by year-end, provided external market conditions are favorable and the government presents a credible deficit-reduction plan linked to euro adoption. The MNB recently maintained its base rate at 5.5% after four cuts this year and lowered its inflation target from 3% to 2.5% as part of its strategy to join the single currency. Inflation in August ticked up to 1.3% from 1.2% in July, but economists still anticipate an additional rate cut this year, with a median forecast of a 25-basis-point reduction.
Kurali highlighted that Prime Minister Peter Magyar's government, which took office in April, has pledged to meet the terms for euro entry by 2030. This timeline suggests Hungary could enter the Exchange Rate Mechanism II (ERM II) by early 2029 at the latest, potentially adopting the euro as early as January 1, 2032, if the Maastricht criteria are satisfied. Fiscal clarity and the formal launch of the euro-adoption process are expected to shift the country's risk outlook favorably. Policy makers will consider the 2027 budget and a medium-term fiscal plan, which the government plans to unveil next month, when deciding on further easing.
The renewed focus on euro adoption has already positively impacted Hungarian assets, with foreign investors pouring more than $13 billion into the local bond market year-to-date, according to Deutsche Bank. Kurali noted that the MNB's immediate priority is anchoring the economy to its revised 2.5% inflation target to guide wage and price behavior. While acknowledging elevated external risks from volatile energy prices and climate change, as well as domestic risks from strong wage and services-price growth, Kurali emphasized the central bank's readiness to support the government's euro adoption process with its expertise.
