The Hungarian National Bank (MNB) incurred a HUF789bn (€1.95bn) loss last year, according to the annual report of the central bank. While still substantial, this represents a sharp improvement from the record deficit of HUF1.76 trillion in 2023.

The main driver of the improvement was a substantial rebound in net interest income from foreign currency operations. The MNB booked a positive net FX interest result of HUF395bn in 2024, up 60% from 2023. On the forint interest income line, the MNB reported a HUF1.1 trillion loss, reflecting the elevated cost of sterilising excess liquidity in the banking system, down from HUF2 trillion a year ago. The net interest income remained deeply negative at HUF701bn, compared with HUF1.76 trillion in 2023.

Hungary experienced one of the highest inflation rates in the EU, peaking above 25% in early 2023. To contain inflation expectations and defend the forint during a period of market volatility and capital outflows, the MNB hiked its key interest rates to some of the highest levels in the EU, with the overnight deposit rate peaking at 18% in October 2022 and the base rate at 13%.

While these measures were effective in anchoring inflation and stabilising the currency, the central bank was forced to pay exceptionally high interest on the liquidity it had previously drained from the banking system via monetary sterilisation tools, primarily one-day deposits and discount bills. Since most of the MNB’s liabilities were remunerated at these elevated interest rates, but its assets, such as foreign currency reserves and long-term government securities, yielded comparatively lower returns, the result was a massive negative interest margin.

Income from exchange rate movements rose sharply, with the MNB realising a HUF393bn gain in 2024, more than quadruple the HUF91bn recorded in 2023. However, financial operations continued to weigh on the bottom line, with losses from realised financial transactions widening to HUF330bn from HUF43bn a year earlier.

The bank had a negative equity of HUF1.7 trillion at the end of 2024.

To manage the fallout, the government amended the Central Bank Act, with ECB approval, allowing the MNB to operate with negative equity and postpone recapitalisation, covering losses from future profits instead of immediately injecting capital. This meant a further easing from an earlier practice, which allowed the government to cover losses in equal payments over five years.