Press release on the Monetary Council meeting of 26 August 2025

26 August 2025

At its meeting on 26 August 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 27 August 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 trade agreement concluded at the end of July between the European Union and the United States mitigated the uncertainty. However, the deadline for the negotiations between China and the United States was extended by a further 90 days. The global growth outlook improved sligthly during the past month. The expenditure-increasing programmes announced in the European Union and those approved in the United States could stimulate growth from the next year onwards.

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 global inflation. Energy prices decreased slightly since the previous interest rate decision.

International financial markets continue to react sensitively to trade and geopolitical developments. The US benchmark stock market indices reached a historic high while US long-term yields decreased. Following the release of unfavourable economic data, the Federal Reserve’s expected interest rate path shifted downwards. Markets price in at least two 25 basis point rate cuts until the end of the year. In the case of the European Central Bank, markets continue to price in at most one further 25 basis point interest rate cut for the same period. Over the past month, among the regional central banks, the Czech and Romanian central banks kept interest rates unchanged.

Hungarian economy remained subdued in 2025 Q2, as well. GDP rose by 0.1 percent in a year-on-year comparison. The incoming data was consistent with the projection in the June Inflation Report. The performance of services had a positive effect on gross domestic product, while industry and agriculture restrained it. In parallel with the stable growth of household consumption, the decline in investment is prolonged, while the export of tradables is generally constrained by the uncertain global environment. The unemployment rate has remained low, while the rate of wage growth slowed in May.

From the next year onwards, both internal and external factors will support the pick-up in growth. Over the forecast horizon, both rising real wages and the government’s tax reductions contribute to strong consumption dynamics. With the improving performance 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 duality: in June, household lending continued to rise, while no turnaround was observed in subdued corporate credit demand. The newly announced loan programmes and subsidies come into effect on an already active housing market. Therefore, the stock of household loans could continue to expand at a higher-than-expected pace this year and the next. Looking ahead, the easing of uncertainty around the growth outlook, the pick-up in economic performance and stronger bank competition may support the recovery in corporate lending. The capitalisation and liquidity position of the Hungarian banking system is strong and capable of satisfying even a signficantly greater credit demand.

In July 2025, inflation decreased to 4.3 percent, and core inflation fell to 4.0 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 have remained at a high level, and the decrease in short-term corporate price expectations slowed in July.

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 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 showed a deficit of EUR 67 million in June, to which temporary items that reduce the balance also contributed. In parallel with an upswing in domestic demand, the current account surplus will undergo a temporary decline in 2025. However, from early 2026 onwards, with increasing external demand and the rising output of new investments, it will rise gradually.

The fiscal deficit may decrease further in 2025, compared to the previous years, in parallel with the gradual decrease in interest expenditures of the Government. The governmental measures announced over the course of the summer are expected to have a moderate effect on the budget in 2025. From 2026 onwards, however, their deficit-increasing effect may grow. Public debt reduction in 2025 is significantly impeded by the cash deficit expected to be higher than the appropriation and subdued economic growth. With the gradual decrease of the deficit, the debt-to-GDP ratio may moderate overall by the end of the foreast 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 10 September 2025.

MAGYAR NEMZETI BANK
Monetary Council