MNI INTERVIEW: NBH Seen Cutting 25BP in February, March Open
The National Bank of Hungary is likely to lower interest rates by a quarter-point this month after inflation came in at 2.1% in January, but concerns over services prices, household inflation expectations and the removal of caps on retail price margins for key food should restrain its signalling of any further easing, former NBH economist Adam Reiff told MNI.
“I would expect them to cut by 25 basis points, then communicate that further incoming data will determine whether or not another cut is possible - opening up the possibility of an easing cycle,” Reiff said in an interview. (See MNI EM INTERVIEW: NBH To Cut In Feb, Then Wait And See - Kiraly)
The NBH has maintained a “very strict” monetary policy, Reiff said, while forint appreciation has further helped bring inflation in line with the target rate of 3% +/-1%.
But while a first cut since September 2025 is on the table after last month’s “surprisingly” low inflation, data in the run-up to April's general election has been mixed. Falling oil and fuel prices made major contributions to January's steep decline from 3.3% inflation, but market services prices gained 5%.
MARKET SERVICES
“The central bank keeps a very close eye on market services, because that's an indicator of underlying developments in the economy. This is something that might give concern to the central bank over the question of a rate cut. It should be concerning, and I would expect concern to remain high even if they do cut interest rates.”
Some nominal price declines can be observed among imported products, including food items, Reiff said, adding that there is evidence the price margin cap is working, though it is unsustainable in the long run.
“I would expect that to be extended into April’s elections, and to remain in effect until at least June,” he said.
The NBH will consider the potential response of financial markets when determining the timing and pace of future moves, Reiff said.
“They certainly won't want to let the forint depreciate very quickly after the rate cut, because … that could undermine any further rate cuts. But they will want to test the water ahead of the quarterly inflation projections in March, and to leave their options for next month as open as possible.”
Household inflation expectations - described by the NBH in November 2025 as “high,” and more recently as “stagnant” - could prove sticky given the relatively recent experience of the surge in inflation.
Additional payments to pensioners made from February may provide some boost to inflation or inflation expectations, but this is unlikely in itself to prevent a rate cut in March, said Reiff, noting that the NBH’s governor and most of its board members are affiliated with the governing Fidesz party.
LOW GROWTH
The Hungarian economy has grown by only 1% in cumulative terms over the past four years, and though rising real wages may yet deliver an uptick in consumer spending, this cannot be relied upon for a near-term boost to the economy overall, Reiff said. Instead, wage gains may go into reverse.
“Even if there were some growth in the next year or two years, firms would be cautious to increase wages, because they have already increased wages beyond what would have been rational. Indeed, they might even look to take back some of this real wage growth, which was unjustified by economic performance.”
Hungary should avoid another ratings agency downgrade, at least until after the elections, despite Prime Minister Viktor Orban’s stating recently that the fiscal deficit may be “some 5%” of GDP in both 2026 and 2027, Reiff said. (See MNI EM INTERVIEW: Hungary Deficit To Exceed 4% GDP in 2026 - Loga)
“It’s hard to know how serious the prime minister was when he said he expects fiscal deficits of 5% to continue - it may have been intentional, it may not. I would not take it for granted that he was referring to 2027 as well as 2026.
“Even if he were, I would not expect it to have a major impact on the ratings agencies’ assessment of Hungary’s public finances.”
