Updated

Updated · dailynewshungary.com · Jul 20

Hungary's Central Bank Seen Cutting Rate 25 Basis Points to 5.75% as Inflation Slows to 1.7%

Updated

Updated · dailynewshungary.com · Jul 20

Hungary's Central Bank Seen Cutting Rate 25 Basis Points to 5.75% as Inflation Slows to 1.7%

Q: As Hungary cuts interest rates to fuel growth, is its soaring government debt setting a trap for the future?

Yes. Hungary has room to cut rates now, but its fiscal path is becoming the bigger medium-term risk. The case for easing is strong in the short run. Inflation is very low at 1.7% in June, the forint has been relatively firm, and the MNB still offers a positive real interest rate even if it cuts to 5.75%. Lower borrowing costs should help an economy that is only gradually recovering, with growth projected around 1.6% to 1.8% this year. The problem is that monetary easing is happening alongside expansionary fiscal policy. Hungary’s general government deficit is forecast at about 6.2% of GDP in 2026 and 5.8% in 2027, far above the EU’s 3% benchmark. Public debt is also rising rather than falling: from roughly 74.6% of GDP in 2025 to about 75.1% in 2026 and 76.8% in 2027, with some forecasts pointing much higher later in the decade. Debt was already around 77.7% of GDP in March 2026. That creates a trap if growth disappoints, EU funds remain constrained, or external shocks hit energy prices and the forint. In that scenario, Hungary could face higher sovereign borrowing costs, less budget room for future crises, and pressure on the central bank to keep rates higher than growth alone would justify. So the immediate rate cuts are not reckless by themselves. The real danger is that easier money may mask a weak fiscal position. Without credible deficit reduction and more efficient public spending, today’s growth support could become tomorrow’s debt burden.

2 articles · Updated · dailynewshungary.com · Jul 20

A 25-basis-point cut to 5.75% is widely expected when the Hungarian National Bank's Monetary Council meets on July 21, extending the easing cycle it restarted in June.
June inflation of 1.7%, a relatively stable forint and improved perceptions of Hungary's financial risk have given policymakers room to lower borrowing costs further.
Governor Mihály Varga had already signaled that quarter-point cuts could follow in July and August, and investors now see the post-meeting guidance as more important than the cut itself.
A lower base rate could gradually ease mortgage, corporate loan and other financing costs, though savers would face weaker deposit returns and banks may not pass through the move immediately.
Even at 5.75%, Hungary would still offer a strongly positive real rate, limiting expected forint weakness, but energy prices, Middle East tensions, fiscal risks and investor confidence could shape the next steps.