Policymakers release first base rate decision under new Central Bank Governor

The Monetary Council of the National Bank of Hungary (NBH) decided to leave the central bank base rate unchanged at 6.50pc at a monthly policy meeting on Tuesday.

The Council also left the O/N deposit rate at 5.50pc and the O/N collateralised loan rate at 7.50pc. The official site said the rates mark the ends of the central bank’s symmetric interest rate corridor.

At a press conference after the meeting, Mihály Varga, the new central bank governor, said tight monetary conditions were warranted, adding that a “careful” and “patient” approach to monetary policy was necessary. He said the inflation path in 2025 was likely to be higher than earlier expected and achieving the 3.0pc inflation target had been delayed. He also pointed to upside risks to inflation as well as trade policy and geopolitical tensions. Varga said that restrictive monetary policy contributed to the achievement of the inflation target in a sustainable manner by ensuring positive real interest rates. He added that the base rate could remain at its current level for “an extended period”.

He said headline CPI would fall back into the NBH’s 3.0pc +/-1pp tolerance band at the beginning of 2026 and approach the 3.0pc target by year-end. In its fresh quarterly Inflation Report, discussed at the policy meeting on Tuesday, the NBH put average annual inflation at 4.5pc–5.1pc in 2025 and at 2.9pc–3.9pc in 2026. The central bank forecast GDP growth of 1.9pc-2.9pc in 2025 and 3.7pc-4.7pc in 2026 in the report.

Varga said expanding consumption could be the engine of growth in 2025, supported by real wage growth and tax cuts. Big investments in industrial capacity started in recent years could start operating at the end of 2025 or in 2026, he added.

He said external demand was set to remain weak in the short term, but a pickup in Europe could boost Hungary’s exports in the mid-term.

Fielding questions, Varga said the Council had discussed just one option and members had supported the decision to keep the base rate on hold unanimously. He said a government-mandated cap on markups of some basic food products could shave 0.8 percentage points off headline inflation. He added that inflation had peaked in February and would start to fall in March.

Addressing the matter of the central bank’s foundations, Varga said the NBH’s new management aimed to cease or scale back activities that diverged from its primary tasks. “It is my belief that these types of activities are not necessary for the central bank in the long term,” he added. Varga said the foundations’ operation would be reviewed and rationalised.

Latest news: Police investigating MNB foundations on suspicion of fraud

The State Audit Office of Hungary has investigated the economic activities of the Pallas Athéné Domus Meriti Foundation, established during György Matolcsy’s presidency of the MNB and managed by people close to him, and the company Optima Investment Ltd., which managed the assets of the organisation.

The police said in a response to 444 that the National Bureau of Investigation is investigating the suspected crime of misappropriation based on a report by the State Audit Office of Hungary.

As we wrote earlier, the National Bank of Hungary has launched a sweeping investigation into handling public funds under its previous leadership. The probe, initiated after Mihály Varga took office as governor, scrutinises controversial financial transactions, including alleged mismanagement linked to Ádám Matolcsy, son of former central bank chief György Matolcsy. Details HERE.