Hungary's currency, the forint, fell 1% to 393 against the euro following remarks by Economy Minister Marton Nagy that the country's real interest rate is excessively high, Portfolio.hu reported on October 7.

Nagy, speaking on the sidelines of Hungary's most prestigious economic conference organised by the financial outlet, said lower rates could still preserve inflation control and currency stability whilst easing financing costs.

Both external and internal factors may justify easing, Nagy said, adding that an environment is emerging abroad in which major central banks see significant risks to economic growth from high lending rates.

Nagy noted that the high interest rate environment fuels carry trade inflows, calling them "hot money", and pointed out that when converted to dollars, Hungary offers the highest yields in the region.

Portfolio.hu recalled a podcast by Viktor Orban on October 6, in which the prime minister said that the base rate is "higher than it should be", suggesting rate cuts could proceed more slowly than the government would like due to the central bank's cautious approach under governor Mihaly Varga, at the helm of the central bank since March.

After months of consensus around maintaining a strong and stable forint, recent government comments have reignited debate over possible interest rate cuts by the National Bank of Hungary, the website assessed.

The central bank, under its new leadership, has been actively working to restore its credibility and to dispel the long-standing perception that a weaker forint is good for the economy by boosting exports.

The recent remarks from government officials have disrupted these expectations, creating uncertainty in the market, as they signalled that the government may be dissatisfied with the central bank's cautious approach. The weaker forint policy during former governor Gyorgy Matolcsy's term in the last 12 years masked major competitiveness issues, one of the biggest structural challenges facing the economy.

The central bank's strict policy has been the key factor behind the forint's strength this year, making it one of the best-performing currencies in 2025.

With inflation still outside the central bank's 2-4% tolerance band, most economists see no room for monetary easing. Some noted that underlying inflation may be closer to 5.5-6% once price caps are phased out, and in this case, Hungary's real interest rate advantage is erased.

Most economists expect that the central bank will maintain its 6.5% rate, unchanged since September 2024, throughout this year, and possibly into the first half of next year as well, even as the Federal Reserve and European Central Bank are easing monetary policy, thus further widening the interest rate advantage of Hungarian assets.

Central bank officials pushed back on comments by Nagy, stressing the institution's independence and commitment to a tight monetary stance until inflation nears the 3% target. At the Budapest Economic Forum, Adam Banai, executive director for monetary policy at the central bank, said that exchange rate stability is now a key element of monetary policy, essential to both achieving the inflation target and maintaining confidence in the economy.

He reaffirmed the central bank's commitment to tight conditions, preserving financial and currency stability. The institution in its latest inflation report forecast that the 3% inflation goal would be reached by 2027.

A central bank deputy governor, former head of the state debt manager AKK, also said that the recent rate decision projected a continuation of a notably tight monetary policy for an extended period.

Statements by central bankers had little impact on the forint. Investors are now assessing whether the government can influence the central bank to cut rates, and if so, how quickly and by how much, creating potentially a new narrative, Portfolio.hu adds.

In a separate report, Bloomberg writes that the forint has received a boost this year, fuelled by hopes of political change in Hungary. The currency has risen 6% against the euro and 20% against the dollar in 2025, outperforming most emerging market currencies.

Although it is too early to predict whether voters will back Peter Magyar's Tisza Party in the April 2026 elections, Bloomberg wrote that even the prospect of Prime Minister Viktor Orban's possible replacement has already improved market sentiment.

The report also cited Barclays Bank's August analysis, which suggested that the forint could strengthen by as much as 5.5% if the opposition defeats Fidesz in next year's election.

Tisza promises a more predictable economic policy, stronger EU ties leading to the release of frozen EU funds, and a crackdown on corruption, measures aimed at rebuilding investor trust, similar to the turnaround under Polish Prime Minister Donald Tusk.

Bloomberg added that Magyar intends to follow the example of Tusk, who, after defeating the previous nationalist government in 2023, swiftly regained access to blocked EU funds. The markets are also expecting that a new Tisza government could unlock €18bn in frozen EU funds, equal to about 10% of GDP, supporting growth and investor confidence.