CEE: Hungary to lower inflation target to 2.5% from 2028
On the radar
- Hungarian central bank kept the policy rate flat at 5.5% and adjusted inflation target to 2.5%.
- Retail sales in Poland landed at 3.8% y/y in August.
- Wage grew 3.3% y/y in Croatia in July.
- Today Poland will release unemployment rate.
Economic developments
Today, we look at inflation targets across the region. In general, inflation-targeting frameworks in CEE are closely aligned with the ECB’s 2% medium-term target. The Czech central bank targets 2%, while Poland and Romania target 2.5% and Serbia 3%. Hungary has now taken an important step in the same direction. The Hungarian central bank announced that it will lower its inflation target from 3% to 2.5% from January 2028, retaining the 1 percentage point tolerance band around the target. Hungary’s progress in real and nominal convergence allows for a lower target, bringing it closer to both regional practice and the ECB’s framework. It also increases the likelihood of meeting the Maastricht inflation criterion. All in all, the lower target should help anchor longer-term inflation expectations and strengthen price stability. Finally, from the beginning of next year, the central bank will replace its current monthly meeting schedule with eight policy meetings per year, bringing its decision-making framework into closer alignment with that of the ECB.
Market movements
The Hungarian forint appreciated following the announcements, as further concrete steps were outlined on Hungary's path toward eventual euro area accession. Based on the relatively hawkish messages, the prospect of rate cuts may have been taken off the table for the coming months. We are placing our interest rate forecast under review. Our current baseline assumes two further 25bp rate cuts in 2026; however, after today's meeting, we see December as the earliest plausible timing for renewed easing, as a result, the possibility that the current policy rate will remain unchanged for the remainder of the year can no longer be dismissed. Long-term yields moved mostly down in the CEE region in recent years. In Romania, PM-designate Mureșan started presenting his government program in Parliament, meeting PNL, USR and UDMR groups and saying he would negotiate with PSD that has so far refused to support his government.
Author
Erste Bank Research Team
Erste Bank
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