Hungary’s central bank kept the interest rate at 6.50% but hinted at the possibility of rate cuts in the future. The bank expects inflation to decrease from 3.8% to 3.2% next year, though the overall economic outlook is less positive. Governor Mihaly Varga stated that the central bank will review data before each meeting and is ready to lower rates if conditions are right. As a result of the bank’s surprise dovish stance, markets now expect total rate cuts of around 60 basis points next year, with a projected terminal rate of 5.72% by 2027.

Impact on the Hungarian Forint

The Hungarian forint lost earlier gains and weakened slightly, with forecasts suggesting that the value of EUR/HUF will soon rise. The rate difference with the euro is at its narrowest since May, indicating that EUR/HUF may reach between 386 and 388. The dovish position is supported by hopes for peace between Ukraine and Russia, which could benefit the forint, as well as the EUR/USD nearing new highs. If these trends continue, they could mitigate the risk of a rising EUR/HUF and align with the central bank’s dovish stance. The Hungarian central bank is clearly indicating potential future rate cuts, marking a significant policy shift. This suggests that the Hungarian Forint (HUF) is likely to weaken against the Euro in the upcoming weeks, with the market already adjusting to lower interest rates next year. For derivative traders, this indicates a strategy to buy call options on the EUR/HUF pair. With the current exchange rate around 384.50, targeting strike prices of 388 or even 390 for January or February 2026 expiration provides a clear avenue to position for this anticipated weakness. This strategy has defined risk, which is crucial given the external economic factors.

Inflation and Monetary Policy

This dovish shift is backed by recent data, as the Hungarian Central Statistical Office reported that inflation in November 2025 dropped to 3.1%, lower than the 3.3% forecast. Reflecting on the rapid policy changes in 2023, central banks can act swiftly when inflation trends are confirmed. Another low inflation report could easily push EUR/HUF above the 388 level. However, there are risks to this outlook, largely due to geopolitical factors and the broader market environment. Positive news from ongoing Ukraine peace talks could quickly strengthen the forint, especially since its economy is sensitive to regional stability. Additionally, the Euro’s strength against the US Dollar may support regional currencies and slow the forint’s decline. Traders should keep an eye on interest rate markets for more opportunities. The market currently anticipates about 60 basis points of cuts for 2026, but we believe the central bank may act more aggressively if the economic situation worsens. Trading on forward rate agreements or interest rate swaps to bet that rates will fall further than what’s currently anticipated could be a profitable strategy. Create your live VT Markets account and start trading now.

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