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Good news from the Hungarian economy: National Bank prepared to protect the Forint, inflation likely to fall – UPDATED
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When the Hungarian forint began losing value in 2022, the Hungarian National Bank (MNB) intervened by significantly raising the base interest rate to protect the national currency. Since then, the Bank has been gradually lowering the base rate to help revive the economy’s struggling engine. However, global developments may once again necessitate action to defend the forint, and it appears the Bank is ready to do so.
Hungarian National Bank poised to defend the Forint
According to portfolio.hu, the Hungarian National Bank may adopt a more cautious approach to its next base rate decision, expected in October. This caution is partly due to global uncertainties, such as the upcoming US presidential election and ongoing geopolitical conflicts.
Barnabás Virág, a Deputy Governor of the Hungarian National Bank, elaborated on this during a presentation for investors. He explained that the Bank’s capacity for manoeuvre with regard to lowering the base rate in October is becoming more limited. Key factors influencing the Bank’s decision include inflation in Hungary, regional economic performance, and the global risk environment.
The situation in the Middle East has escalated, China has unveiled measures to stimulate its economy, and the United States has reported stronger-than-expected economic data. These factors have increased the risk of higher inflation, while geopolitical uncertainties have already driven the forint above the 400/EUR level. As a result, the Bank’s more cautious stance is understandable.
Hungarian government aims for economic growth
As Hungary moves into the campaign period for the 2026 general election, government officials, including Prime Minister Viktor Orbán, have been emphasising the need for economic growth, rising wages, and increased investment. This would require an injection of capital into the economy. However, despite foreign investment, domestic consumption has not risen as the government had anticipated.
Due to the high base interest rate, many Hungarians have opted to keep their savings in banks or even abroad. While the government would like to reduce interest rates to stimulate consumption and boost growth, lowering rates too far could make the forint even more volatile. With numerous global and regional uncertainties at play, the exchange rate could easily rise, leading to soaring inflation—a vicious cycle that would be difficult to break.