Hungary Central Bank Eyes Rate Cut Amid Euro Adoption Plans

Hungary's central bank may still lower interest rates by year-end if external market conditions improve and the government presents a credible plan for joining the eurozone, according to Deputy Governor Zoltan Kurali. The National Bank of Hungary kept its base rate steady at 5.5% on Tuesday, pausing a series of cuts made earlier this year.

Kurali said that if the government meets its pledge to join the euro by 2030, Hungary could enter the Exchange Rate Mechanism (ERM-2) as early as 2029. The earliest date for adopting the euro would be January 1, 2032, if Hungary meets the Maastricht criteria by 2030.

The central bank has lowered rates four times this year as inflation remained below target. While price growth has ticked up to 1.3% in August from 1.2% in July, economists expect another rate cut this year. Kurali noted that caution is needed due to high volatility in core market yields and global energy prices.

The government's pledge to join the euro has triggered a rally in Hungarian assets, with foreign investors pouring $13 billion into the local bond market year-to-date. Kurali emphasized that the bank will support the government's efforts to adopt the euro once the decision is made.