Press release on the Monetary Council meeting of 22 July 2025

22 July 2025

At its meeting on 22 July 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 23 July 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.

Ongoing trade and geopolitical tensions continue to create an uncertain global economic environment. The conditions of the concluded and envisaged tariff agreements and their expected real economic effects vary greatly by region. The expenditure-increasing programmes announced in the European Union and those approved in the United States could stimulate growth from the next year onwards.

Inflation decreased in most countries in 2025 H1. However, price dynamics accelerated slightly in 2025 Q2. Looking ahead, the upward effect of tariffs on inflation expectations, further rises in global food prices, as well as continued high price dynamics in market services pose upside risks to inflation. The volatility of energy prices decreased since the previous interest rate decision.

Risk appetite in international financial markets is mainly influenced by tariff announcements and developments related to geopolitical conflicts. There was a rise in major stock market indices and US long-term yields. The Federal Reserve’s expected interest rate path shifted slightly upwards, with markets pricing in two 25 basis point rate cuts this year. In the case of the European Central Bank, markets continue to price in a single 25 basis point interest rate cut until the end of the year. Over the past month, among the regional central banks, the Polish central bank cut interest rates by 25 basis points while the Czech and Romanian central banks kept interest rates unchanged.

In 2025 Q1, Hungarian economy stagnated. In parallel with the stable growth in household consumption, the decline in investment is prolonged, while the export of tradables is generally constrained by the uncertain global environment. High-frequency data for the second quarter continue to indicate subdued performance. In May, retail sales and construction increased slightly, while industrial production decreased compared to the same period of the previous year. In the second half of the year, stable growth in consumption and normalising external demand point to the gradual recovery of economic growth. The unemployment rate remains low, however, the rate of wage growth slowed in May.

From the next year onwards, both internal and external factors will support the acceleration of growth. Over the forecast horizon, both rising real wages and the government’s tax reductions contribute to strong consumption dynamics. With the recovery of the European economy and the rising output of the capacity-increasing investments of recent years, a faster expansion of exports is expected.

Domestic lending is still characterised by a duality: in May, household lending continued to rise, while corporate credit demand remained subdued. As a result of the improving income positions of households, price increases in the housing market, as well as current and newly announced subsidised loan programmes, the stock of household loans could continue to expand at a higher-than-expected pace this year and the next. At the same time, the risk of overvaluation in the housing market may increase. A turnaround in corporate lending is expected as the economy recovers and uncertainty eases. The capitalisation and liquidity of the Hungarian banking system is strong and capable of satisfying even a signficantly greater credit demand.

In June 2025, inflation rose to 4.6 percent, while core inflation fell to 4.4 percent. Mandatory and voluntary price restriction measures had a significant diminishing effect on inflation, however, strong corporate repricings can still be observed outside their scope. Household inflation expectations remain at a high level, while corporate price expectations decreased in June.

For the rest of the year, inflation is expected to stay above the tolerance band. The rate of price increases may decline persistently to the tolerance band in early 2026 and reach the 3 percent inflation target in early 2027. Given buoyant consumption, volatile commodity prices and strong wage dynamics, price stability can be achieved in a sustainable manner by ensuring tight monetary conditions.

The current account balance registered a deficit of EUR 69 million in May in a large part due to one-off items. With an upswing in domestic demand, the current account surplus will undergo a slight, temporary decline in 2025. With normalising external demand and the rising output of new investments, it will rise gradually from early 2026 onwards.

The fiscal deficit may decrease further in 2025, compared to the previous years. The primary balance excluding interest expenditures may be close to balanced budget levels over the entire forecast horizon. Public debt reduction in 2025 is significantly impeded by subdued economic growth. The debt-to-GDP ratio may moderate with the gradual decrease of the deficit from 2026 onwards.

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.

In line with the gradual decline in the excess liquidity of the banking system during the first half of this year, the Monetary Council has decided to reduce the required reserve ratio from 10 percent to 8 percent as of August 1, 2025. The non-interest bearing part of required reserves remains at 2.5 percent of the reserve base. With this technical adjustment, liquidity developments are neutral in terms of their overall impact on monetary transmission and do not imply any change in the continued tight stance of monetary policy.

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 13 August 2025.

MAGYAR NEMZETI BANK
Monetary Council