Hungary’s central bank has decided to lower its medium-term inflation target from 3 per cent to 2.5 per cent from 2028, a move that could support Hungary euro adoption by bringing domestic monetary policy closer to conditions prevailing in the euro area. However, several other economic, fiscal and legal requirements still need to be met before Hungary can introduce the common currency.
The Monetary Council of the National Bank of Hungary (MNB) decided after reviewing its inflation target that the new 2.5 per cent target will take effect on 1 January 2028, HVG reported.
The current target is 3 per cent, with a tolerance band of plus or minus one percentage point. According to the central bank, lowering the target brings Hungary closer to regional practice and to the European Central Bank’s 2 per cent inflation target.
The change will nevertheless begin influencing monetary policy before 2028 because central banks set interest rates based on their medium-term inflation outlook rather than current inflation alone.
Lower inflation target supports Hungary euro adoption
The MNB said Hungary’s economic convergence with the euro area and the decline in inflation expectations created room to lower the target. The central bank expects a lower-inflation environment to contribute to more predictable economic conditions and, over the longer term, lower nominal interest rates and financing costs.
It also explicitly linked the decision to Hungary’s preparations for joining the euro area.
MNB Governor Mihály Varga said earlier in September that euro adoption required a disciplined and coordinated strategy between monetary and fiscal policymakers. He said Hungary should introduce the euro in a way that allows the economy to continue converging both before and after joining the currency union.
The Hungarian government has meanwhile said it aims to meet the Maastricht criteria required for euro adoption around 2030. That does not amount to a formal date for replacing the forint with the euro: meeting the criteria would be a prerequisite for entering the final stages of the process.
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What Hungary still has to do before introducing the euro
Lower inflation is only one element of euro-area accession.
EU countries seeking to adopt the single currency must meet convergence requirements covering price stability, sustainable public finances, long-term interest rates and exchange-rate stability. They must also participate in the Exchange Rate Mechanism, known as ERM II, for at least two years without severe exchange-rate tensions.
Hungary is not currently part of ERM II, and the European Commission states that the country has no formal target date for adopting the euro.
The Commission’s June 2026 Convergence Report also concluded that Hungary did not yet fulfil the conditions for joining the euro area. At the time of the assessment, Hungary failed the price-stability criterion, while Hungarian legislation, including rules governing the MNB, was not considered fully compatible with requirements for participation in the Eurosystem.
Inflation has since fallen, which helps explain why the MNB now sees scope for setting a lower target.
Public finances remain a major challenge
Fiscal policy remains another important part of the equation. Hungary is still subject to the EU’s excessive deficit procedure, although the procedure is currently held in abeyance following the Commission’s assessment of government measures.
The European Commission’s spring forecast projected Hungary’s general government deficit at 6.2 per cent of GDP in 2026 and 5.8 per cent in 2027. Public debt was forecast to rise from 74.6 per cent of GDP in 2025 to 75.1 per cent in 2026 and 76.8 per cent in 2027.
As a recent HVG analysis noted, euro preparations therefore require coordination between the government’s fiscal policy and the MNB’s monetary policy.
The reduction of the inflation target is a concrete change on the monetary side. For Hungary euro adoption to progress further, however, the country will also need sustainable public finances, exchange-rate stability, legal alignment and eventually entry into ERM II. The latest MNB decision therefore marks one step in a process that is likely to extend over several years.
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Just in: interest rate decision – Monetary Council leaves base rate unchanged
The Monetary Council of the Hungarian National Bank (MNB) left the 5.50 per cent base rate unchanged at its meeting on Tuesday, the central bank announced.
Both ends of the interest rate corridor also remained unchanged: the overnight (O/N) deposit rate stands at 4.50 per cent, whilst the upper end of the corridor, the overnight (O/N) lending rate, stands at 6.50 per cent.
The decision was in line with analysts’ expectations.
The committee last cut the base rate in August, by a unanimous decision, by 25 basis points to 5.50 per cent.
