Hungary Cuts Inflation Target to 2.5% in Euro Adoption Push

Hungary's central bank has made a significant move toward adopting the euro by lowering its inflation goal. The National Bank of Hungary will reduce the highest inflation target in the European Union to 2.5% from 2028, down from its current 3%. This decision was made after policymakers decided to pause their interest rate cutting cycle and keep the key rate at 5.5%, according to Governor Mihaly Varga.

The reduction of the inflation target is a crucial step in Hungary's pivot toward adopting the euro, which is used by most EU countries. The bank will retain a 1 percentage point tolerance band around its Consumer Price Index (CPI) goal. This change will likely have implications for monetary policy and economic growth in Hungary.

The move comes after a decision to pause interest rate cuts, which were aimed at stimulating the economy. The key rate has been kept at 5.5% by Governor Varga, who said this would allow policymakers to focus on inflation targeting.