Press release on the Monetary Council meeting of 25 March 2025

​25 March 2025

At its meeting on 25 March 2025, the Monetary Council reviewed the latest economic and financial developments and decided on the following structure of central bank interest rates with effect from 26 March 2025:

The primary objective of the Magyar Nemzeti Bank (MNB) is to achieve and maintain price stability. Without prejudice to its primary objective, the Magyar Nemzeti Bank preserves financial stability and supports the Government’s economic policy, as well as its policy on environmental sustainability.

Due to prolonged geopolitical conflicts and intensifying trade policy tensions, the global economic environment continues to be uncertain. In the US, the risk of a slowdown in economic activity has emerged. In the EU, the easing of fiscal rules and the programmes for expenditure hikes announced in recent weeks may boost economic growth which has been subdued for years.

The decline in global inflation came to a halt in the autumn of 2024. The consumer price index rose again in several economies. Inflation was above the central bank target in both the US and the euro area. Looking ahead, the effect of increases in trade tariffs, further rise in global food prices and continued high price dynamics in market services pose upside risks to inflation. Oil and gas prices have fallen slightly over the past month.

Global investor sentiment is volatile. Announcements related to trade policies significantly increased uncertainty in international financial markets, while in case of the Russia-Ukraine war, the start of negotiations on a ceasefire had a favourable effect on risk appetite. Plans for fiscal stimulus increased the European long-term yields, while the depreciation of the US dollar improved the assessment of emerging market assets. The Federal Reserve left the target range for the federal funds rate unchanged, while the European Central Bank reduced interest rates by another 25 basis points in March. In the region, the Polish and the Romanian central banks have kept interest rate conditions unchanged in 2025. The decision makers of the Czech central bank reduced the policy rate by 25 basis points at the February meeting.

The recovery in Hungarian economy which began at the end of 2024 has continued. The volume of retail sales rose in January, while industrial production and construction activity declined in annual terms. Real wage growth has remained strong; however, the consumer confidence index has continued to be at a low level. The number of employees is high by historical standards, while the unemployment rate rose slightly to 4.4 percent in January.

The further expansion in consumption in 2025 is expected to be the driver of growth looking ahead. This will reflect rising real wages and tax cuts by the Government. The large capacity-enhancing industrial investment projects, implemented in recent years, may start production at the end of 2025 and during 2026. External demand is likely to remain subdued over the short-term; however, the strengthening of the European economic activity is expected to stimulate domestic exports in the medium term. The Hungarian economy is expected to grow by 1.9–2.9 percent in 2025, expanding further by 3.7–4.7 percent in 2026, and by 2.8–3.8 percent in 2027.

Trends in domestic lending continue to have a dual nature: the household credit market picked up further in January, while corporate credit demand remained low. The annual growth rate of household loans may continue to increase in 2025. The growth rate of corporate lending is expected to rise from 2025 H2, in parallel with a pick-up in economic performance and the easing of uncertainty.

In February 2025, inflation rose to 5.6 percent and core inflation to 6.2 percent. The extent of repricings at the beginning of the year was above the historical average in case of tradables, market services and food. Market services accounted for nearly half of the total annual price increase. The Council continues to closely follow pricing decisions in the services sector. Both household and corporate price expectations increased.

The consumer price index will decline after its peak in February. Inflation is expected to be above the central bank tolerance band for the rest of the year. In case of food, product group affected by profit margin caps by the authorities is expected to moderate consumer prices in the coming months. The strong price dynamics in market services points to higher inflation throughout the year. The rate of price increases is likely to return to the central bank tolerance band at the beginning of 2026, approaching the 3 percent inflation target at the end of the year. In the MNB’s projection, annual inflation is expected to be 4.5–5.1 percent in 2025, while the consumer price index is expected to be 2.9–3.9 percent in 2026 and 2.5–3.5 percent in 2027.

The current account balance has continued to improve. The monthly balance showed a surplus of EUR 345 million in January 2025. With an upswing in domestic demand, the current account surplus is expected to temporarily decline slightly in 2025. However, normalising external demand and the rising output of new investments are expected to result in a persistently significant surplus in the external position from 2026 onwards. The current account surplus is projected to range between 1.2– 2.6 percent of GDP in 2025, 1.8–3.4 percent in 2026 and 2.0–3.8 percent in 2027.

In the MNB’s projection, the fiscal deficit may decrease further in 2025, supported mainly by declining interest expenditures and rising tax revenues as economic growth picks up. The primary balance excluding interest expenditures is likely to be at near-equilibrium levels over the entire forecast horizon. The debt ratio is expected to fall steadily in the coming years, even with the revised deficit target for 2026.

In the Monetary Council’s risk assessment, there are overall upside risks to inflation in the baseline scenario in the March projection. The alternative scenarios highlighted by the Council assume rising trade tensions, deterioration in emerging market sentiment, easing of geopolitical tensions and fiscal stimulus in Europe.

In the current macroeconomic environment, the Bank can make the most effective contribution to the easing of economic agents’ increased precaution and to the restart of economic growth by achieving price stability and maintaining financial market stability. Restrictive monetary policy contributes to the maintenance of financial market stability, the anchoring of inflation expectations consistently with the central bank target and, as a result, to the achievement of the inflation target in a sustainable manner by ensuring positive real interest rates. The MNB also strengthens market stability using two instruments with maturity extending beyond the end of the quarter: T/N FX swap tenders announced on a daily basis, and weekly discount bill auctions.

In line with the stability-oriented approach, the Council left the base rate unchanged at 6.50 percent at today’s meeting. The O/N deposit rate and the O/N lending rate also remained unchanged, at 5.50 percent and 7.50 percent, respectively.

The Monetary Council is committed to the achievement of the inflation target in a sustainable manner. The inflation path this year is likely to be higher than earlier expected, and achieving the target has been delayed. A careful and patient approach to monetary policy remains necessary due to upside risks to inflation as well as trade policy and geopolitical tensions. In the Council’s assessment, the uncertain international environment and the outlook for inflation warrant the maintenance of tight monetary conditions.

The abridged minutes of today’s Council meeting will be published at 2 p.m. on 9 April 2025.

MAGYAR NEMZETI BANK
Monetary Council

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