Hungary’s central bank retained the current rate at 6.50% but expressed a dovish outlook, suggesting possible upcoming rate cuts. The bank forecasted a reduction in inflation from 3.8% to 3.2% for the next year, while the economic outlook has declined.
Governor Mihaly Varga indicated that the central bank would assess data on a per-meeting basis, ready to reduce rates given favourable conditions. Despite expectations, the bank’s dovish surprise led markets to anticipate rate cuts totalling an additional 60 basis points next year, with a reduced terminal rate of 5.72% in 2027.
Impact on the Hungarian Forint
The Hungarian forint reversed earlier gains and slightly weakened, with expectations that EUR/HUF will increase soon. The rate differential with the euro is near its narrowest level since May, indicating a potential rise in EUR/HUF to between 386 and 388. The dovish stance is supported by optimism for a Ukraine-Russia peace agreement, benefiting the forint, and EUR/USD approaching new highs. If these trends persist, it could balance the EUR/HUF upside risk, thereby supporting the central bank’s dovish approach.
We see the Hungarian central bank is now clearly signaling future rate cuts, a major shift in policy. This makes a weaker Hungarian Forint (HUF) against the Euro the most likely path in the coming weeks. The market is already adjusting, expecting interest rates to be significantly lower next year.
For derivative traders, this suggests buying call options on the EUR/HUF pair. With the cross currently trading near 384.50, targeting strike prices of 388 or even 390 for expiration in January or February 2026 offers a direct way to position for this expected weakness. This strategy has a defined risk, which is important given the external factors at play.
Inflation and Monetary Policy
This dovish turn is supported by fresh data, as the Hungarian Central Statistical Office reported that November 2025 inflation fell to 3.1%, below the 3.3% forecast. Looking back at the sharp policy reversals we saw in 2023, central banks can act quickly once the inflation trend is confirmed. Another soft inflation print could easily push the EUR/HUF through the 388 level.
However, there are risks to this view, primarily stemming from geopolitics and the broader market. Positive updates from the ongoing Ukraine peace negotiations could cause a rapid strengthening of the forint, as its economy is highly sensitive to regional stability. The strength of the Euro against the US Dollar also provides some support for regional currencies, which could slow the forint’s decline.
Traders should also look at interest rate markets, where we see opportunities. The market has priced in about 60 basis points of cuts for 2026, but we think the central bank could be more aggressive if the economic outlook continues to worsen. Using forward rate agreements or interest rate swaps to bet on rates falling further than currently priced could be a profitable secondary strategy.
