Press release on the Monetary Council meeting of 24 June 2025

24 June 2025

At its meeting on 24 June 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 25 June 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 geopolitical conflicts and tariff announcements continue to create an uncertain global economic environment. However, as the first tariff agreements are more favourable than expected, the risk of recession in the United States has decreased. In the European Union, the announced expenditure-increasing programmes could stimulate growth from next year onwards.

Inflation decreased in most countries in the spring months. Looking ahead, the upward effect of tariffs on inflation expectations, elevated global food prices, as well as continued high price dynamics in market services pose upside risks to inflation. As a result of the war conflict in the Middle East, oil price volatility has increased significantly.

Global investor sentiment remains volatile. Risk appetite is mainly influenced by developments related to geopolitical conflicts and tariff negotiations. For most of the period, there was a rise in major stock market indices, but uncertainty in the stock markets also increased due to the escalation of the conflict in the Middle East. The dollar has typically weakened against developed market currencies. Despite significant financing needs of budgets, long-term yields in the United States and in Europe have not changed significantly over the past month. At its June policy meeting, the European Central Bank cut interest rates by 25 basis points; according to central bank communications, the current monetary policy cycle is nearing its end. In June, the Federal Reserve left the target range for the federal funds rate unchanged. Over the past month, the interest rate path expected from the world’s leading central banks shifted slightly upwards. Among the regional central banks, the Polish central bank held an interest rate decision meeting and left its key rate unchanged.

In 2025 Q1, Hungarian economy stagnated. The high-frequency data for the spring months continue to indicate subdued performance. In addition to the vigorous growth in household consumption, the decline in investment is prolonged. The export of tradables is restricted generally by the uncertain global market environment. In the second quarter, the duality continued: in April retail sales increased by 5 percent, while industrial production decreased significantly, and construction activity decreased slightly, compared to the same period of the previous year. A gradual recovery is expected in the second half of the year, supported by stable and strong growth in consumption, the slowly normalising external economy as well as base effects. Overall this year, a 0.8 percent GDP growth is expected, which is lower than the March Inflation Report’s forecast.

From the next year onwards, both internal and external factors will contribute to further economic recovery. The GDP of Hungary may increase by 2.8 percent in 2026 and by 3.2 percent in 2027. Strong consumption dynamics will remain an important factor of growth over the entire forecast horizon, supported both by rising real wages and government’s tax reductions. The large capacity-increasing investment projects of the past years will gradually begin production. With the recovery of the European economy and the ramp-up of output of new investments, a faster expansion of exports and an increase in our export market share are expected over the forecast horizon.

The duality of real economic performance is also reflected in the domestic credit market: in the first quarter, household lending continued to rise, while in the corporate segment no turnaround has taken place yet. As a result of the improving income positions of households, price increases in the housing market, as well as the launch of the Subsidised Loans for Workers, the stock of household loans may rise by about 12 percent in 2025, and by 9–11 percent in 2026 and 2027. The stock of corporate loans may rise by 4.5 percent in 2025 and by 9 percent in 2026 and 2027 as a result of economic recovery and the easing of the uncertainty surrounding the economic environment. The capitalisation of Hungarian banks is strong, and their liquidity remains abundant despite expiring central bank programmes.

In May 2025, inflation rose to 4.4 percent, while core inflation fell to 4.8 percent. In the short term, partly mandatory, partly voluntary price restriction measures have a strong diminishing effect on inflation. At the same time, strong repricings can be observed in the pricing behaviors of companies. Price changes in May were slightly above historical levels in the case of tradables. Excluding the impact of one-off measures, in the case of market services, the price increase was also strong. Inflation expectations of households decreased but remain at high level.

For the rest of the year, inflation is expected to stay above the central bank tolerance band. In the medium term, with buoyant consumer demand, volatile commodity market movements and persistently strong wage dynamics, the inflation target can be achieved in a sustainable manner by ensuring tight monetary conditions. 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. According to the MNB’s projection, inflation is expected to average 4.7 percent this year, and the consumer price index could be 3.7 percent in 2026 and 3.0 percent in 2027.

The current account balance showed a surplus of nearly EUR 940 million in April. With an upswing in domestic demand, a slight temporary decline in the current account surplus is expected in 2025. However, normalising external demand and the rising output of new investments are expected to result in a gradual increase in the external position from early 2026 onwards. As a result, the current account surplus is projected to be around 2.0 percent of GDP in 2025, 2.2 percent in 2026 and 2.5 percent in 2027.

The fiscal deficit may decrease further in 2025, driven by lower interest expenditures and reduced public investment. 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 the high level of cash-flow deficit and subdued economic growth. The debt-to-GDP ratio may moderate with the gradual decrease of the deficit from 2026 onwards.

According to the Monetary Council’s risk assessment, the baseline scenario in the June projection is surrounded by mostly upside risks to inflation and downside risks to growth. The alternative scenarios highlighted by the Council assume the escalating geopolitical tensions, a slower decline in inflation expectations, as well as a faster easing of labour market tightness. Besides the highlighted scenarios, the Monetary Council discussed alternative scenarios assuming rising trade tensions, the easing of geopolitical risks, a more robust economic growth in Western Europe, as well as a faster decline in inflation expectations.

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 9 July 2025.

MAGYAR NEMZETI BANK

Monetary Council