The MNB base rate fell further, to 5.75% today, just as promised

HUNGARY - In Brief 21 Jul 2026 by Istvan Racz

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At today's regular monthly rate-setting meeting, the Monetary Council reduced the base rate further by 25 bps, to 5.75%. This was no surprise at all; the Governor actually promised this cut a month ago, saying this step would be done, and another one of similar size was coming in August as well, in case nothing seriously negative happens in the meantime.So today's decision essentially clarified that nothing seriously negative happened between late June and now. The only such development that could have been qualified as such, with some stretch of the imagination, was the reescalation of the Middle East conflict in the past month, but the Council saw it otherwise. Moreover, and this was perhaps Mr. Varga's most important statement at the press conference that followed the meeting, the Council sees further room for cutting the base rate, despite what is currently happening in and around the Strait of Hormuz. Consequently, the August base rate cut by another 25 bps is also likely to take place, in case the Strait situation does not get any more dire in the meantime.On other matters, Mr. Varga repeated his previous claims that lifting the caps on retail margins, which could be a government decision, would not threaten the Bank's current inflation outlook in any serious way, and that the BOP looks a bit worse this year, but it is likely to improve once again in 2027. Well, we think the government will first of all give a thought to when and how they should reintroduce the price caps on fuels, in case oil prices continue to rise, and as regards the BOP situation, the Governor's description on the matter seems neither comprehensive, nor entirely accurate.But the next 25 bps c...