Hungary’s Central Bank Defies Pressure to Cut Rates

Hungary’s central bank will wait for inflation to decline in a sustainable manner before cutting interest rates. Policy makers are under growing pressure from the government to lower borrowing costs.

Hungary’s central bank will wait for inflation to decline in a sustainable manner before cutting interest rates. Policy makers are under growing pressure from the government to lower borrowing costs.Hungary’s central bank is holding firm against mounting government pressure to lower interest rates, insisting that monetary easing will only begin once inflation declines in a “sustainable” way.

Deputy Governor Zoltán Kurali said policymakers would keep the benchmark rate at 6.5%, one of the highest in the European Union, until inflation consistently falls within the bank’s 2%–4% tolerance band. “A single headline reading dipping into our tolerance range is not enough,” Kurali told Reuters. “Inflation needs to return sustainably toward the 3% target on the policy horizon.”

Kurali’s comments come as Prime Minister Viktor Orbán’s government intensifies calls for rate cuts to boost a sluggish economy ahead of elections next year. In a podcast earlier this week, Orbán said the key rate was “higher than it could be” and that “there need to be cuts.” Economy Minister Márton Nagy echoed that sentiment, arguing that policy easing could begin without undermining the forint.

Kurali, however, pushed back strongly, saying the central bank’s credibility depends on its commitment to price stability. “This is a question of credibility,” he said at a conference organized by Portfolio.hu. He dismissed the idea that monetary conditions are overly restrictive, emphasizing that the exchange rate has become a key channel for transmitting monetary policy.

Hungary and neighboring Romania have recorded the EU’s highest inflation rates this year, limiting their ability to follow peers in loosening policy despite stagnant growth. Hungary’s inflation rebounded to 4.4% in May, and Kurali said there was “nothing to discuss” in terms of easing while price growth remains above target.

The central bank’s caution comes as Hungary’s economy struggles to gain momentum. After a contraction in the first quarter and modest growth in the second, industrial output fell 4.6% year-on-year in August, signaling continued weakness. Kurali attributed persistent inflation to entrenched price expectations, saying this justified keeping monetary conditions tight.

Still, he noted that the forint’s recent stability against the euro could help temper inflation pressures through exchange-rate effects. “It’s positive that monetary transmission is working effectively in money markets,” he said.

Analysts say Kurali’s remarks make it increasingly unlikely that the National Bank of Hungary will deliver a rate cut before the end of 2025, despite market bets on a small reduction.