New inflation report does not point to a lower MNB base rate in the foreseeable future

HUNGARY - In Brief 26 Sep 2025 by Istvan Racz

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The monthly rate-setting meeting of the Monetary Council was held three days ago, and the Q3 inflation report was published yesterday. At the meeting, no rate or other policy action was taken, and the existing "careful and patien" policy approach, together with the Council's hawkish forward guidance, making no reference to any prospective rate cuts, was maintained. The new inflation report, detailed below, includes a pretty aggressive CPI forecast, in terms of the intended path of rapid disinflation. In the light of all these, and also of the authorities' publicly expressed ambition to avoid a sovereign credit downgrade by major rating agencies in view of fiscal policy concerns in the election period, we do not foresee any base rate cut between now and the middle of next year. On the details, the new inflation report expects GDP growth to accelerate from 0.6% this year to 2.8% in 2026, together with average CPI-inflation decelerating from 4.6% this year to 3.8% in 2026 and 3% in 2027. Broken down to quarters, the inflation forecast looks as follows: So, headline CPI-inflation would go down exactly to target, on a sustainable basis, by Q1 2027. Just as a reminder, this rundown represents, just as usual, more of a forecast at the front end of the curve, but increasingly a policy objective, rather than a forecast, moving towards the rear end, reaching what they call the monetary policy horizon. Now, this is (respectably) dead aggressive, in our view. For an assessment, one needs to consider the following:- This forecast assumes the government lifting the current administrative price controls at end-November, in line with the current legal status of the latter. These contr...