By Gergely Szakacs and Krisztina Than
BUDAPEST, June 8 (Reuters) – A fall in Hungary’s inflation and risk premia has likely lowered the interest rate level needed for price stability, but the central bank must tread carefully amid volatility in long-end yields and energy prices, a senior policymaker told Reuters.
The bank last month discussed a rate cut for the first time since lowering its base rate to 6.25% in February from the European Union’s then-highest level, helped by inflation dropping below its 3% target at the start of the year.
But the Iran war and volatility in global markets have made policymakers cautious, despite the potentially disinflationary impact of the forint’s gains after an April 12 election ended former Prime Minister Viktor Orban’s rule.
Consumer prices rose 1.8% in the first four months of 2026, versus the bank’s March forecast of 3.8% average inflation for the full year. Economists polled by Reuters see May inflation at 2.3%, below target.
“Clearly, we have a better-than-expected inflation data as we speak. There is also an improvement in risk premia,” Zoltan Kurali, deputy governor in charge of monetary policy and financial stability, said in an interview on Friday.
“As a result, potentially the required rate to achieve and maintain price stability might be lower,” said Kurali, who backed the staff recommendation for no change in rates at the May meeting, where one policymaker proposed a cut.
The prospect of major central banks such as the European Central Bank, the Bank of Japan and the Federal Reserve raising interest rates is another reason for caution, he said.
“We need to evaluate the potential trajectory of policy rates, making sure that on a forward basis as well, we maintain positive real rates,” Kurali said. “Positive real rates are necessary in Hungary to achieve and maintain price stability.”
ECONOMISTS SEE POLICY EASING IN THE PIPELINE
Economists polled by Reuters last month projected the bank would cut its base rate by a combined 125 basis points by end-2027. The next policy meeting is due on June 23.
Kurali said the June decision would hinge on incoming data, the new inflation forecast, international uncertainty, market volatility and what he called a risk premia “regime shift” in local markets.
“We look at data, and if the data is there, then, of course, we will make the right decision that ensures that the inflation target is achieved and maintained,” he said, warning inflation could still rise by year-end.
Asked whether any move would be a one-off or the start of a cycle, Kurali said: “I think it’s difficult to talk about cycles in this environment, mainly because of the international surrounding.”
Peter Magyar’s centre-right government has placed adopting the euro back on the agenda, while last month he secured a deal to unlock billions of euros of European Union funds, boosting investor sentiment towards Hungarian assets.
Asked whether he would favour a cautious rate move or a larger adjustment, Kurali said he was “always a cautious mover,” declining to comment on how low rates could eventually fall.
INFLATION TARGET REVIEW
Kurali also said the bank would launch a regular review of its 3% medium-term inflation target in the summer, alongside the government’s aim to meet euro adoption criteria by 2030.
The review will examine the impact of a lower target closer to euro zone levels, and the strategy and timing for any change, which could come in one or two steps, he said.
“Our expectation is that by the autumn, we will have this analysis fully prepared and discussed,” he said, adding the government was unlikely to formally start the euro adoption process this year.
(Writing by Gergely Szakacs. Editing by Mark Potter)
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