Hungary’s central bank governor sends a strong message about the country’s financial position

The Hungarian banking system remains well capitalised and highly liquid, while a faster-than-expected decline in inflation could create room for further interest rate cuts during the summer, according to Mihály Varga, Governor of the National Bank of Hungary (MNB).

Speaking at the 37th annual general meeting of the Hungarian Banking Association, Varga said domestic financial institutions continued to support Hungary’s financial stability despite uncertainty in the global economy. The central bank governor also highlighted the importance of cooperation between the MNB and the banking sector in protecting customers and combating financial cybercrime.

Hungarian banking system reaches historic capital level

According to the latest figures presented by Varga, the capital adequacy ratio of the Hungarian banking system has reached 21 percent, the highest level ever recorded in the country.

The ratio measures whether banks hold sufficient capital to absorb potential losses and continue operating during periods of financial or economic stress. A high capital adequacy ratio therefore indicates that Hungary’s banks have a substantial buffer against possible shocks.

According to Index, Varga also said liquidity within the sector remained ample, allowing banks to continue financing households and businesses while supporting the wider economy.

The MNB governor noted that stable financial institutions and effective cooperation between regulators and market participants become even more important during periods of uncertain global economic conditions. In his assessment, the results achieved jointly by the central bank and the Hungarian Banking Association over the past year have strengthened the domestic financial services market.

For international readers, the MNB is Hungary’s central bank and is responsible for monetary policy, financial stability and the supervision of the country’s financial institutions. The Hungarian Banking Association represents commercial banks and other financial service providers operating in Hungary.

Inflation falls faster than expected

The outlook for inflation has also improved considerably. Hungarian inflation, which remained above 5 percent at the beginning of last year, declined to 1.7 percent by June 2026, Varga said.

Following an assessment of economic developments during the first six months of the year, the central bank also reduced its forecast for average annual inflation. While the MNB had previously expected inflation of 3.8 percent in 2026, its latest projection anticipates an annual rate of 1.8 percent.

Lower inflation is important for households because it means that consumer prices are increasing more slowly. It may also provide the central bank with greater flexibility to reduce borrowing costs, although future decisions will continue to depend on incoming economic data and risks affecting financial markets.

Further Hungarian interest rate cuts may follow

Hungary’s Monetary Council reduced the central bank base rate to 6 percent at the end of June. According to Varga, the combination of improving inflation prospects, declining global risks and a stable Hungarian banking system may provide room for additional rate cuts during the summer.

However, the governor stressed the importance of maintaining a cautious and patient approach. Monetary easing can support lending, investment and economic activity, but reducing rates too quickly may create risks for inflation or the exchange rate of the Hungarian forint.

The MNB therefore appears likely to continue assessing each rate decision individually rather than committing itself to a predetermined series of cuts. Varga said the stability of financial markets and the significant decline in inflation expectations supported the central bank’s approach.

If you missed it: European Commission approves EUR 2 billion Hungarian capital injection

Incoming IMF executive director visits the MNB

In a related international development, Varga received Helmut Ettl at the National Bank of Hungary on 13 July. Ettl is due to become an executive director at the International Monetary Fund on 1 November 2026, representing the Central and Eastern European constituency that includes Hungary.

During their meeting, Varga and Ettl reviewed the most important economic developments and discussed opportunities for future cooperation.

Ettl currently serves as executive director of Austria’s Financial Market Authority and has held the position since 2008. His two-year IMF term will begin on 1 November, after he leaves the Austrian supervisory authority at the end of October. He has also served on the European Central Bank’s Supervisory Board and as vice-chairperson of the European Banking Authority.

The meeting underlined the importance of regional and international cooperation at a time when central banks and financial regulators are navigating changing inflation trends and continued global uncertainty. For Hungary, the combination of record banking-sector capital reserves and easing price pressures provides a more favourable environment, although the pace of any further monetary easing will depend on whether these positive trends continue.

What’s next? Strong forint’s first victim? Mass layoffs at Hungarian pharmaceutical giant