Hungary’s National Bank (MNB) has kept its base rate at 6.50% for the thirteenth month in a row, which is the highest borrowing cost in the EU alongside Romania. The bank’s governor, Mihály Varga, emphasizes a steady monetary policy and a strong approach to support the forint, helping to control inflation. Varga noted that without price caps from the government, inflation would potentially be 1.5 percentage points higher. He aims to reach a 3% inflation rate by early 2027. Projections show that inflation will stay close to the upper limit target through 2026, with a new forecast of 3.8% for that year.

Government And Central Bank Relations

While Prime Minister Viktor Orban and Minister Marton Nagy have occasionally expressed interest in lower rates, the relationship between the government and the MNB remains stable. The MNB’s strong policies and Varga’s clear communication continue to support the forint’s exchange rate. The chances of sudden shifts in monetary policy due to political pressures are low, which helps maintain trust in the bank’s strategy. With the MNB’s recent decision to keep the base rate at 6.50%, the forint is likely to stay stable in the near future. This strong approach goes against government calls for lower rates and shows a commitment to currency stability. For derivative traders, this suggests a period of low volatility for the forint. The central bank’s position is backed by recent economic data. In September 2025, inflation was reported at 4.8%, still above the target. This creates a positive real interest rate of 1.7%, which is crucial for attracting foreign investment and stabilizing the currency. The MNB is determined to avoid the inflation spike experienced in 2023.

Investment Strategies And Risks

This situation is good for strategies that benefit from low volatility, like selling EUR/HUF straddles. With the exchange rate steady around 385 for several months, the central bank’s clear communication should keep large price swings in check. We expect this tight trading range to continue until the end of the year. The large interest rate difference between Hungary and the Eurozone makes the forint carry trade attractive. The MNB’s 6.50% rate is much higher than the European Central Bank’s 2.50%, offering a significant yield advantage. We can use currency forwards to lock in this difference, which seems safe as long as the political relationship with the central bank remains stable. However, we need to stay alert for any changes in the government’s tone. While political interference seems unlikely at the moment, a return to the hostility seen during the Matolcsy era before 2024 could threaten the forint’s stability. Any serious push for rate cuts would be a signal to quickly adjust these positions. Create your live VT Markets account and start trading now.

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