On Tuesday, the Monetary Council of the Hungarian National Bank (MNB) convened for its monetary policy meeting and decided to keep the base interest rate unchanged at 6.50%.

The overnight central bank deposit rate remains at 5.50%, and the overnight collateralized loan rate is set at 7.50%.

This decision signals that the MNB has opted to maintain its current monetary policy stance, finding no reason to alter the interest rate environment during this session.

The base interest rate has remained steady since April, with no modifications made at that time.

Notably, the last change to the base rate occurred in September, when it was reduced by 25 basis points.

Economic analysts have previously indicated that no significant surprises were anticipated from the MNB's May meeting.

Given the prevailing economic conditions, including non-market-driven inflation, a vulnerable budget, and uncertainties regarding EU funds, a tightening of monetary policy might be the only measure providing predictability in the current environment.

Furthermore, Finance Minister Mihály Varga is seen as a pivotal figure in maintaining economic stability.

Indicators of the Hungarian economy have shown troubling signs, particularly in relation to investments and industrial production.

In the first quarter of 2025, the volume of investments was 12.1% lower compared to the previous year.

Additionally, industrial production struggled early in the year, experiencing a notable decline in January and February, with only minimal growth recorded in March, but an overall year-on-year decrease in output.

Prior to the MNB's May interest rate meeting, most market participants had not considered any questions to be truly open.

In this context, analysts were cited discussing the current situation.

In related developments, Finance Minister Mihály Varga engaged in discussions with representatives from the Hungarian pharmaceutical industry pertaining to potential price caps affecting medications.

This meeting included figures such as David Greskovits, president of the Hungarian Pharmaceutical Manufacturers' Association (MAGYOSZ), along with other senior officials.

As part of broader economic measures, a recent price cap on around 3,500 consumer products, including drugstore items, was announced on May 19. Initial results from the Ministry of Economic Development indicated that 406 out of 426 surveyed products became cheaper on the first day of implementation.

Significant price reductions were observed particularly in categories such as beauty care, cleaning supplies, and household goods.

Although a projected price cut of 16-18% was expected, actual reductions approached 25%, with some items seeing decreases of over 50%.

In his remarks following the rate decision, Varga noted that the fight against inflation has not yet concluded.

The MNB has maintained its base interest rate at 6.50%, with the corridor rates for overnight deposits and loans remaining unchanged.

The inflation rate in April was reported at 4.2%, aligning with expectations, while core inflation stood at 5%.

Although consumer inflation expectations have moderated, Varga emphasized the continued need for stabilization of both corporate and household expectations to achieve inflation targets.

The employment landscape also showed signs of change, with labor market tightness alleviating significantly; the number of job vacancies in the private sector has reverted to levels seen in 2016. Through adjustments to interest rates, the MNB aims to influence economic performance, balancing the need for accessible credit with the risks of inflation.