Governor of the National Bank of Hungary’s Major Economic Announcements

Mihály Varga, the 22nd Governor of the National Bank of Hungary, who took office in March 2025, made a series of major economic announcements as part of the Monetary Council on 22 August, then at a press conference on 26 August. Major topics included inflation and interest rates, Hungary’s Home Start Programme set to start on 1 September—and Hungary’s path towards adopting the Euro currency.

Inflation and Interest Rates

Portfolio, reporting on the 26 August press conference, noted: ‘The performance of the Hungarian economy is affected by the weakness of the German economy.’

This is due to Germany being Hungary’s largest trading partner. Although slower activity eases inflation pressures, reducing the need for tighter monetary policy, weaker growth also challenges Hungary’s ability to sustain high interest rates, complicating the balance between inflation control and supporting the economy.

‘The performance of the Hungarian economy is affected by the weakness of the German economy’

Portfolio further adds: ‘our external balance indicators are developing reassuringly, and the pick-up in domestic demand in the economy may shape this in the near future, and the central bank is closely monitoring this.’ Reassuring external balances mean less FX pressure: Hungary posted a 2024 current account surplus of 2.2 per cent of GDP and a goods trade surplus of EUR 978 million in June 2025. 

Domestic demand is reawakening as retail sales rose 3.0 per cent year on year in June and wages 9.7 per cent, raising upside risks to prices. Headline inflation was 4.3 per cent in July, above the 3 per cent target, so the Monetary Council kept the base rate at 6.50 per cent, with the overnight corridor at 5.50 per cent to 7.50 per cent. With stronger consumption, the bank should watch whether import growth erodes the external surplus; persistent inflation means tight policy, while disinflation could permit easing later.

Home Start Programme

According to a 26 August ATV article: ‘household lending has already been dynamic this year, at an annual rate of 13 per cent, while housing prices increased by 15.9 per cent annually, including 24.3 per cent in Budapest.’ Varga believes that ‘the general trend in the housing market may have justified the introduction of the 3 per cent loan, which has only a minor indirect impact on the general interest rate level.’

Hungary’s Home Start Programme, also known as ‘Otthon Start’, offers this fixed-rate mortgages at 3 per cent up to HUF 50,000,000 for first-time buyers of homes, easing affordability alongside CSOK Plus and Rural CSOK. 

‘The general trend in the housing market may have justified the introduction of the 3 per cent loan’

CSOK Plus is a state-subsidised mortgage for married couples raising or planning children: a fixed 3 per cent loan, 10–25 years, with higher caps for more children. Rural CSOK complements it with grants and 3 per cent loans for buying, building or renovating homes in designated small settlements, coupled with tax and VAT relief, subject to eligibility limits.

A recent decree harmonized those schemes and allows them to be combined, with identical property caps: HUF 100 million for flats and HUF 150 million for houses. Eligibility rests on documented social-security history, and minimum down payments are roughly 10 per cent under central-bank guidance. The programme applies nationwide, covering new builds and second-hand homes in eligible villages, while oversight aims to prevent overheating amid rising prices.

Euro Adoption Stagnation

Index reported on 22 August that ‘the Hungarian currency cannot really strengthen further below 400 against the euro last week, but the good news is that it cannot weaken either, as the 6.50 per cent base rate provides strong support for the forint.’

This interest rate of 6.50 per cent has remained unchanged for the past 11 months. With July inflation at 4.3 per cent, that is about 2.2 percentage points above inflation. It also pays roughly 4.5 points more than the euro area’s 2.00 per cent deposit rate, which helps the forint. The rate remains far below the 13 per cent peak in September 2022. 

In this context, Varga announced that ‘trade and geopolitical tensions are causing an uncertain global economic environment,’ meaning that ‘in the European Union and the United States, spending increase programmes can stimulate growth from next year.’

In response to journalists who asked him when Hungary would adopt the Euro, Varga replied: ‘it is of fundamental importance for the Hungarian economy to meet the conditions for the introduction of the euro.’ He specified that ‘today, the most important goal of economic policy is to have low inflation, low budget deficits, price stability and stable growth.’

On 26 August, business online newspaper Világgazdaság noted that ‘before Mihály Varga’s speech, the euro-forint spiked above 397,’ but that ‘as the market digested what was said, a steep strengthening of the forint began, and the euro-forint sank to 396.3.’

‘Today, the most important goal of economic policy is to have low inflation, low budget deficits, price stability and stable growth’

The initial currency selloff signalled uncertainty and a higher risk premium. After policy remarks clarified fiscal and growth paths, sentiment reversed. The rebound suggests that Varga’s credible communication outweighed lingering concerns about deficits and external vulnerabilities.

Also on 26 August, Privátbankár noted that after ‘the Monetary Council’s decision to leave the base rate at 6.5 per cent, the domestic currency became relatively more expensive against the euro and the dollar.’ The Hungarian Monetary Council is the decision-making body of the Magyar Nemzeti Bank, Hungary’s central bank. While adopting the Euro requires government assent and Maastricht compliance, Council guidance will be pivotal; Varga has signalled euro entry depends on readiness, echoing earlier caution that adoption before 2030 would be premature. 

Hungary currently has no target date and the Hungarian Monetary Council has up to this point avoided entry into the European Exchange Rate Mechanism (ERM II) in order to keep a flexible forint and an independent inflation-targeting regime.

With external balances improving and domestic demand reawakening, Hungary couples a steady 6.50 per cent base rate with 3 per cent Home Start mortgages to support growth without losing discipline. Clear communication has kept the forint resilient near 400, while Euro adoption remains a realistic, albeit longer-term objective.

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