Hungary’s Central Bank Hit Pause On Rate Cuts

Hungary’s central bank paused its rate-cutting streak on Tuesday, holding its base rate at 5.5% while warning that global inflation risks could flare up again.

The National Bank of Hungary had been easing policy as inflation cooled fast, cutting rates by a quarter-point in each of its last three meetings and taking the base rate to 5.5%. With annual inflation at 1.3% in August, that looks comfortably below the bank’s 3% target. But Governor Mihaly Varga argued it’s too early to relax, pointing to “serious” global inflation risks, including energy prices and imported inflation. Another complication is Europe: ING, a Dutch bank, noted the European Central Bank raised rates by 25 basis points in September, which narrows the interest-rate gap that helps keep the forint attractive to foreign investors. Markets took the pause as a sign that currency stability matters: the forint edged weaker to 361.85 per euro shortly after the decision.

When Hungary’s rates fall closer to the eurozone’s, investors earn less extra return from holding forints instead of euros. That can reduce cross-border inflows, weaken the currency, and make imports cost more in local terms, which can push inflation back up. So even with inflation well below target today, a softer forint can shrink the central bank’s room to keep cutting. The result: traders may treat the 5.5% policy rate less as a stepping stone to rapid easing and more as a line of support for the forint, shifting expectations for how many cuts come next and where EUR/HUF settles in the near term.