BUDAPEST — Hungary's central bank could deliver an interest-rate cut before year-end provided external market conditions are supportive and the government presents a credible deficit-reduction plan tied to euro adoption, Deputy Governor Zoltan Kurali said Thursday.
The National Bank of Hungary held its base rate at 5.5% on Tuesday and lowered its inflation target to 2.5% from 3%, part of the country's strategy to join the single currency. The pause ended a series of four cuts this year, during which inflation has remained well below target.
Kurali told Reuters that Prime Minister Peter Magyar's government, which took office in April after ousting Viktor Orban, has pledged to meet the terms for euro entry by 2030. That timeline implies Hungary could enter the Exchange Rate Mechanism II — the pre-euro waiting room — in early 2029 at the latest, and adopt the euro as soon as January 1, 2032 if the Maastricht criteria are satisfied.
Policy makers will weigh energy-market developments, the 2027 budget and a medium-term fiscal plan the government plans to unveil next month when deciding whether further easing is feasible, Kurali said.
"If the data warrant it and the move is well-founded, then the possibility of rate easing is of course open," he said, referencing the median forecast in a September Reuters poll that projected an additional 25-basis-point cut by the end of 2026.
He added that fiscal clarity and a formal launch of the euro-adoption process would shift the outlook from uncertainty toward "a different, more favourable risk environment."
Inflation ticked up to 1.3% in August from 1.2% in July, but economists broadly still expect one more rate cut this year. Kurali cautioned, however, that caution was needed given volatility in core market yields and global energy prices.
Magyar's return of euro adoption to the policy agenda has already triggered a rally in Hungarian assets. Foreign investors have poured more than $13 billion into the local bond market year-to-date, according to Deutsche Bank.
On the exchange rate, Kurali declined to comment on where Hungary should set its ERM-II parity, saying the bank's immediate priority was anchoring the economy to its revised 2.5% inflation target to guide wage and price behaviour.
Any further reduction in the inflation target, if needed to meet euro-entry conditions, would only be considered after Hungary joins ERM-II, economists surveyed by Reuters project that will happen in 2029 or 2030.
"We stand ready," Kurali said. "As soon as the government makes the decision to launch the euro adoption process, we will support it with all of our experience and expertise."
External risks remain elevated: volatile energy prices and climate-change effects have already reduced this year's economic growth by 0.4 percentage point, the central bank estimates, while simultaneously raising inflationary pressure. Domestically, Kurali flagged strong wage and services-price growth as key risks. Services inflation ran in the 5% to 6% range, boosted by one-off adjustments in banking and telecoms, which he called too strong.
Companies need to raise productivity to avoid a wage-price spiral, he said, adding that the lower inflation target should help bring double-digit wage rises to an end.
