Insights 
VT 
Hungary’s National Bank (MNB) kept its base rate at 6.50% for the thirteenth consecutive month, maintaining the EU’s highest borrowing costs alongside Romania. The bank’s governor, Mihály Varga, insists on stable monetary policy and a firm approach to sustaining the forint, which aids in controlling inflation.
Varga suggested that without governmental price caps, inflation would be 1.5 percentage points higher. He expects to achieve a 3% inflation rate by early 2027. Projections indicate inflation will hover near the upper target limit through 2026, with a revised forecast of 3.8% for that year.
Government And Central Bank Relations
Despite occasional remarks from Prime Minister Viktor Orban and Minister Marton Nagy favouring lower rates, the relationship between the government and MNB appears stable. The MNB’s firm policy and Varga’s consistent messaging continue to support the forint exchange rate. The likelihood of sudden changes in the monetary policy due to political interference seems low, maintaining confidence in the bank’s strategy.
Given the Hungarian National Bank’s decision yesterday to hold its base rate at 6.50%, we believe the forint will remain supported in the near term. This hawkish stance defies government calls for cuts and signals a commitment to currency stability. For derivative traders, this suggests a period of lower volatility for the forint.
The central bank’s argument is strengthened by current economic data, as we saw September 2025 inflation print at 4.8%, which still remains above target. This creates a positive real interest rate of 1.7%, a key factor in attracting foreign investment and stabilizing the currency. We remember the painful inflation spike of 2023, and the MNB is clearly determined to avoid a repeat.
Investment Strategies And Risks
This environment is favorable for strategies that profit from low volatility, such as selling EUR/HUF straddles. With the exchange rate holding steady around the 385 level for several months, the central bank’s clear and patient messaging should continue to suppress large price swings. The expectation is for this tight trading range to persist into the end of the year.
The significant interest rate differential between Hungary and the Eurozone also makes the forint carry trade compelling. The MNB’s 6.50% rate towers over the European Central Bank’s 2.50%, offering a substantial yield pickup. We can use currency forwards to lock in this differential, which appears relatively safe as long as the political relationship with the central bank remains calm.
However, we must remain watchful of any change in tone from the government. While political interference seems unlikely for now, a return to the open hostility we witnessed during the Matolcsy era before 2024 would immediately threaten the forint’s stability. Any serious push for rate cuts would be a signal to quickly unwind these positions.
