Hungarian central bank's Deputy Governor sends strong message to government
The statutory objective of central bank policy is to achieve and maintain price stability,
said Zoltán Kurali.
The Deputy Governor of the MNB indicated that the situation today is no different to what was communicated in September, Kurali emphasised. The latest interest rate decision projected a particularly tight monetary policy for a long time to come.
Kurali then went on to say that the current financial stability is mainly due to high interest rates and short-term investment positions. He believes that the central bank must make difficult decisions.
Lowering interest rates would pose a risk to the stability of the forint, whereas maintaining the current level could hinder economic growth.
He reiterated that the primary aim of the MNB's mandate is to maintain price stability, and that monetary policy impacts the economy through several channels. He emphasised that the savings channel is particularly strong at present, with high interest rates encouraging the population to save, resulting in a savings rate of around 6%.
In addition, the Deputy Governor stated that the impact of the exchange rate channel has intensified, doubling in recent times, and that market reactions are occurring more quickly.
He added that the functioning of lending channels is less clear. In his opinion, there was a time when the impact of interest rates on growth and inflation could be clearly seen in corporate lending, given that subsidised loans have long been a dominant feature of the economy. He said that, while consumer loans are now available at market interest rates, other products often only partially follow market pricing.
He believes that the central bank should focus on areas where it has real influence, such as the willingness to save and real interest rates.
He believes that real interest rates remain a key factor and can still be considered effective in the current situation, even if only two-thirds to three-quarters of the effects of previous price cap measures return to the economy after the cap is lifted. He recalled that the government had set 30 November as the deadline for phasing out the margin cap and that this decision had been carefully considered in terms of both timing and communication.
According to Kurali, the goal is to bring inflation back to a stable, predictable range in an environment free of market distortions. At the same time, he referred to retail utility tariff cuts as a separate category, which he believes operates according to a different logic than price / margin caps or central bank interest rate policy.
This was the response of the Deputy Governor after Economy Minister Márton Nagy told Portfolio following his presentation at the Budapest Economic Forum 2025 conference that, in his opinion,
in view of the economic environment, the time has come to for the central bank to consider lowering interest rates.
He believes that the current level of real interest rates is unreasonably high, despite inflation being close to the target level, the forint exchange rate being stable, and the country's finances being secure.
In an interview on Monday, Prime Minister Viktor Orbán also described high interest rates as unfavourable, albeit more delicately, stating that "interest rates are higher than necessary" and that he anticipates "cautious reductions in the longer term, which will also support economic recovery".
However, the Economy Minister was more specific, providing an explanation for his statement and indicating that, in his view, these factors together create a macroeconomic balance that allows for a shift towards monetary easing. He added that, while the previous high interest rates were justified by the crisis period, circumstances have now changed significantly and a new phase in monetary policy could begin to support economic growth.
Márton Nagy also emphasised that the international environment, particularly the shift in interest rate policy observed among major central banks, points towards interest rate cuts. He stated that the decisions of the US Federal Reserve and the European Central Bank also signal looser money market conditions, which could provide Hungary with some scope for manoeuvre. He believes that,
if implemented gradually and cautiously, interest rate cuts would not jeopardise financial stability and could help revitalise corporate investment and the credit market.
However, the market reacted quickly to the minister's words, with the forint suddenly weakening against the euro.
While the Hungarian currency was trading at around 388.5 against the euro in the morning, it weakened by 4.5 units after the announcement, reaching an exchange rate above 393 by late afternoon.
Some investors interpreted the minister's statement as indicating monetary easing. This led to increased caution towards the domestic currency and caused temporary volatility in the markets.
Cover photo: Zoltán Kurali, Deputy Governor of the National Bank of Hungary (MNB) responsible for monetary policy, financial stability, and foreign exchange reserve management. Source: Portfolio/Márton Mónus
