Press release on the Monetary Council meeting of 21 October 2025

21 October 2025

At its meeting on 21 October 2025, the Monetary Council reviewed the latest economic and financial developments and decided on the following structure of central bank interest rates with effect from 22 October 2025:

The primary objective of the Magyar Nemzeti Bank (MNB) is to achieve and maintain price stability. Without prejudice to its primary objective, the Magyar Nemzeti Bank preserves financial stability and supports the Government’s economic policy, as well as its policy on environmental sustainability.

Although the global growth outlook has improved slightly, ongoing trade and geopolitical tensions continue to create an uncertain global economic environment. The outlook for economic growth of Germany, Hungary’s most important trade partner, remains subdued.

The decrease in global inflation has slowed. The increasing fragmentation of international supply chains due to tariffs, the further rise of global food prices, and the continued high price dynamics in market services still pose upside risks to global inflation.

International financial markets continue to react sensitively to trade and geopolitical developments. The main risk indicators were volatile, and the price of gold reached another historical high. Market pricings suggest that the Federal Reserve could further reduce its federal funds target range, while market actors do not expect the European Central Bank to further reduce interest rates this year. Among the regional central banks, the Polish central bank reduced its policy rate, while the Romanian central bank kept interest rates unchanged in the past month.

The performance of the Hungarian economy is still characterised by duality. According to the macroeconomic data received since the previous interest rate decision, the expansion of retail sales continued at a slower pace, while industrial production volume fell further in August. The output of the construction industry fell significantly, while order books increased further. Although domestic consumption and business confidence improved in September, sentiment indices remain at a low level. In addition to the persistent easing of labour market tightness, the unemployment rate remains low.

From the next year onwards, both internal and external factors will contribute to the pick-up in growth. Strong consumption dynamics will persist over the entire forecast horizon. With the improving performance of the European economy and the rising output of the capacity-increasing investment projects of recent years, a faster expansion of exports is expected.

Domestic lending is still characterised by duality: the rise of the stock of household loans is substantial, while no significant turnaround can be observed in corporate lending. The loan programmes and subsidies announced in recent months come into effect on an already active housing market, and as such, the expansion of household lending may increase further. The stock of corporate lending may undergo restrained growth in the coming period due to the uncertain macroeconomic environment. The capitalisation and liquidity position of the Hungarian banking system is strong and capable of satisfying even a signficantly greater credit demand.

In September, inflation was 4.3 percent, similar to the previous two months and core inflation was 3.9 percent. Mandatory and voluntary price restriction measures have a significant diminishing effect on inflation. However, strong corporate repricings was still observable outside their scope. The forint has been strengthening since the beginning of the year, and its favourable effects are increasingly seen in manufacturing producer prices and import prices. Short-term corporate price expectations showed subdued dynamics in September as well. Household inflation expectations decreased slightly, but remain at a high level.

For the rest of the year, inflation is expected to stay above the central bank tolerance band. The rate of price increases may decline persistently to the tolerance band in early 2026. By ensuring tight monetary conditions, the 3 percent inflation target can be achieved in a sustainable manner in early 2027. In the current economic situation, maintaining the stability of the foreign exchange market is of key importance in reducing inflation expectations.

The current account balance showed a surplus of EUR 365 million in August. In parallel with an upswing in domestic demand, the current account surplus will undergo a slight, temporary decline in all of 2025. However, from 2026 onwards, with rising output of new investments, the external balance position will strengthen further.

The fiscal deficit may decrease further in 2025 in parallel with the gradual decrease in the Government’s interest expenditures and a near-equilibrium primary balance. Public debt reduction in 2025 is impeded by the cash deficit, which is expected to be higher than the appropriation, and subdued economic growth. However, with the expected gradual decrease of the deficit and preserving financial market stability, the debt-to-GDP ratio may moderate again over the forecast horizon.

In the current macroeconomic environment, the Bank can make the most effective contribution to the easing of economic agents’ increased precaution and to sustainable economic growth by achieving price stability and maintaining financial market stability. Restrictive monetary policy contributes to the maintenance of financial market stability, the anchoring of inflation expectations consistently with the central bank target and, as a result, to the achievement of the inflation target in a sustainable manner by ensuring positive real interest rates.

In line with the stability-oriented approach, the Monetary Council left the base rate unchanged at 6.50 percent at today’s meeting. The O/N deposit rate and the O/N lending rate also remained unchanged, at 5.50 percent and 7.50 percent, respectively.

The Monetary Council is committed to the achievement of the inflation target in a sustainable manner. A careful and patient approach to monetary policy remains necessary due to risks to the inflation environment as well as trade policy and geopolitical tensions. In the Council’s assessment, maintaining tight monetary conditions is warranted.

The abridged minutes of today’s Council meeting will be published at 2 p.m. on 5 November 2025.

MAGYAR NEMZETI BANK
Monetary Council