Hungarian National Bank Ready to Protect Forint, Inflation Expected to Decrease
The Hungarian National Bank has been on high alert since the forint began losing value in 2022. To protect the national currency, the Bank raised the base interest rate significantly. As the economy struggled, the base rate was gradually lowered to stimulate growth. However, global developments could once again threaten the forint, prompting the Bank to take action.
Recent reports suggest that the Hungarian National Bank is preparing to defend the forint amid global uncertainties such as the American presidential elections and geopolitical conflicts. Deputy governor Barnabás Virág highlighted that the Bank’s room for maneuver in the upcoming October base rate adjustment is shrinking due to factors like inflation in Hungary, regional performance, and global risk sentiment.
With escalating tensions in the Middle East, China’s efforts to boost its economy, and stronger economic data from the United States, the risks of higher inflation have increased. These factors, coupled with geopolitical uncertainties, have weakened the forint, pushing it above 400/EUR. As a result, the Hungarian National Bank is approaching the October base rate adjustment cautiously.
As Hungary enters the campaign period for the 2026 general elections, government officials, including Prime Minister Viktor Orbán, are emphasizing the need for economic development and higher wages. Despite foreign investments, Hungarians have not increased their consumption as expected, prompting the government to seek ways to stimulate the economy.
The high base interest rate has led many to keep their savings in banks or overseas. Lowering the base rate could encourage consumption and promote economic growth, but excessively low interest rates could exacerbate forint volatility. Given the global and regional uncertainties, a sharp increase in the exchange rate could lead to skyrocketing inflation, creating a challenging cycle to break.
Analysts from portfolio.hu anticipate lower inflation rates in Hungary this autumn and winter, with September’s median inflation likely around 3%. If accurate, this would mark the first time in 3.5 years that Hungary’s inflation falls below 3%. While December may see a year-on-year inflation rate of 4.5%, lower than initially estimated, experts warn of potential inflation spikes in December 2025. Overall, the 2024 yearly inflation rate is expected to be around 3.8%.
As economic challenges persist, the Hungarian National Bank remains vigilant, ready to take necessary actions to protect the forint and promote stability in the country’s economy.
