Hungary Cuts Inflation Target, Euro Adoption Momentum Builds

The Hungarian central bank has lowered its inflation target to 2.5% from 3%, effective from 2028, in a move that signals the new government's commitment to adopting the euro.

This decision has boosted appetite for local bonds among foreign investors, who have poured $13.5 billion into the Hungarian bond market this year, making it the largest annual inflow by a wide margin.

The 10-year bond now trades at a yield of 5.64%, below Poland's 6.16% and Romania's 7.29%, as foreigners' holdings of forint-denominated bonds have surged to their highest levels since 2019.

Analysts say there is room for yields to fall further, provided Hungary delivers on its deficit reduction plans and EU funds allocation, but caution that energy price risks remain a concern in the short term.