MNB will indeed lower its inflation target, but only from January 2028

HUNGARY - In Brief 22 Sep 2026 by Istvan Racz

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There has not been too much surprise heard from today's Monetary Council meeting. The base rate was indeed held at 5.5%, and the inflation target is indeed set to go lower, to 2.5%, just as Bloomberg predicted already a few weeks ago. Somewhat surprisingly though, Governor Varga said after the meeting, that the Bloomberg article of September 3, which gave away the key part of today's decisions, was actually an unintended leak, denying that the MNB management had anything to do with that intentionally. In this regard, he spoke of an internal investigation, which managed to identify the circle, from which the leak could happen, but he did not want to say anything more than that, etc., etc. Well, we do not know... so far the rule has been that anyone who committed such an indecency was summarily fired from the Bank.Anyway, the much more important detail is that the inflation target will be lowered only from January 2028. This should leave for MNB with much more flexibility, as regards interest rate policy in short term. The following chart (from Mr. Varga's post-meeting presentation), which shows the Bank's new (headline CPI) inflation forecast (the red line) against the previous one (released in June) tells more about the problem. The MNB currently expects inflation to rise until Q3 2027, mainly referring to global energy prices, which would require much tighter policy if the Bank decided to reduce the inflation target right away, in the face of that rising trend of the headline rate.This way, however, they can say that the reduction of the inflation target has been pushed out to the 'monetary policy horizon', i.e. essentially the period for which the inflation rate can ...