Equilor: The Hungarian National Bank faces a new era, headed by Mihály Varga

In November 2024, the Hungarian Prime Minister announced that after the expiration of György Matolcsy’s mandate, Mihály Varga would nominate former Minister of Finance to head the Hungarian National Bank (MNB). At his December hearing, Mihály Varga emphasized that, in accordance with the Central Bank Act, maintaining low inflation remains the goal of the MNB, and that special attention is paid to maintaining a stable forint exchange rate, which plays a decisive role in economic growth. The former finance minister has also successfully allayed market participants’ concerns that the new central bank leadership would give greater weight to the Government’s economic policy considerations than before. In addition to Mihály Varga, there will be further personnel changes in the Monetary Council, with the mandates of Dr. Mihály Patai, Dr. Csaba Kandrács and Gyula Pleschinger also expiring this year.

Zoltán Varga, senior analyst at Equilor Investment Zrt., said about the challenges facing the new central bank leadership that although the negotiations that have begun on ending the Russian-Ukrainian war have temporarily contributed to the strengthening of the forint, the prolongation of the process may cause the forint to weaken again, and the interest rate policies of the Fed and the ECB may also have an adverse effect on emerging market currencies. Zoltán Varga added: Donald Trump’s actions continue to pose strong inflation risks, but the central bank’s room for maneuver will be primarily influenced by the forint exchange rate and global energy prices in the coming period. In previous years, the current management of the MNB and the government have had a sharp professional debate on the positive real interest rate environment. Equilor expects that the relationship between the government and the central bank may improve with the new management, but it is easily conceivable that the difference of opinion on the real interest rate issue will remain. Equilor Befektetési Zrt. expects that a total of 50 basis points of interest rate cuts may be realistic in 2025, which could put the forint on a moderately weakening path again, which could result in an exchange rate of around 420 forints to the euro by the end of the year.

György Matolcsy is leaving the central bank after a turbulent period: when he took office in 2013, there was also a cycle of interest rate cuts, but in a global environment that is very different from the current one. The early years of the Matolcsy era were about fighting deflation, with the domestic central bank pursuing an ultra-loose monetary policy, implementing a number of measures outside the interest rate channel. With the rise in consumer prices in 2021 – further strengthened by the Russian-Ukrainian conflict – the interest rate hike cycle began. In September 2022, the MNB announced the end of the cycle at an interest rate of 13 percent, but due to the further significant weakening of the forint, the central bank was forced to make an extraordinary, additional 500 basis points, effective interest rate hike.