Part I — Situation overview

At its meeting of 25 August 2026 the Monetary Council reduced the central bank base rate by 25 basis points to 5.50 per cent; the overnight deposit rate fell to 4.50 and the overnight lending rate to 6.50 per cent. This is the third quarter-of-a-percentage-point (pp) cut in a row — the third step of the “mini rate-cutting cycle” launched by the Magyar Nemzeti Bank (MNB, the central bank of Hungary) in June. 444.hu recalled that the body last cut rates at three consecutive meetings in March–May 2016, and that the base rate has not been this low since May 2022. In the reasoning for its decision the central bank referred to the fact that inflation developments came in below the baseline path forecast in June, while the risk premium on domestic assets remained stable.

Behind the figures stands an unusual coincidence. According to the July data of the Central Statistical Office (KSH), annual inflation was 1.2 per cent — analysts’ expectations moved around 1.5 per cent — and core inflation (the price index cleared of the volatile effect of energy and food prices) fell to 1.9 per cent. The primary objective of the MNB is, as laid down in law, price stability, which it defines as an annual inflation target of 3 per cent with a tolerance band of 2–4 per cent. The actual figure is therefore not only below the target but below the tolerance band as well. Alongside a base rate of 5.5 per cent this means a positive real interest rate of more than four percentage points — that is, the nominal rate exceeds the actual rise in prices by this much. According to preliminary data, second-quarter gross domestic product (GDP) grew by 1.7 per cent year on year; according to the central bank’s communiqué industry and services supported growth, while agriculture held it back because of the drought. On the day of the decision the forint moved in a band of HUF 361–363 to the euro.

The real news, however, was not the rate cut but what was said after it. At his Tuesday press conference the governor of the MNB, Mihály Varga, stated that work relating to the review of the inflation target had begun in the spring, and that its results could be reported in the autumn. The governor added that the inflation target is currently the highest in Hungary within the European Union, and that if the government is serious about its euro adoption plans, that also means a task for the central bank. This sentence was uttered one month after the Ministry of Finance had prepared the amendment of the 2026 budget with a deficit target of 7.5 per cent (see our analysis of 25 August 2026) — that is, the review of the monetary framework and the replanning of the fiscal path are taking place in the same few weeks. MIAK’s reading: changing the 3 per cent target value is not technical fine-tuning but the rewriting of the nominal anchor of monetary policy, which affects wage, pension and loan contracts running for decades. Precisely for this reason what matters is whether the decision rests on a documented, publicly debated analysis, or whether it will be an announcement born within a closed professional circle.

Part II — Foundations in the literature

What is at stake in a modification of the monetary framework is described by three volumes together. In chapter 2 of its publication World Economic Outlook 2025 the International Monetary Fund (IMF) shows that the shock-absorbing capacity of emerging economies has depended not on luck but on the quality of frameworks: clear communication of the central bank’s reaction function anchors inflation expectations, and by doing so makes precisely the difficult decisions cheaper. Box 2.3 of the same chapter quantifies the measurable price of undermining central bank independence — this is the most important warning for the present review. The volume The Return of Depression Economics by Paul Krugman (American economist, Nobel laureate, researcher of the macroeconomics of crises) analyses the situation in which a high interest rate is maintained for a long period in a slowing economy without any inflation worth speaking of — his description of the Brazilian case is a direct parallel to today’s Hungarian real interest rate level. And the work Globalization and Its Discontents by Joseph E. Stiglitz (American economist, Nobel laureate, former chief economist of the World Bank) provides the principled basis on which we speak of the publicity of the review at all: on his argument, economic policy decisions taken behind closed doors are regularly worse than those in which those affected can also make their voices heard. The detailed treatment of the literature — author by author, with quotations — can be found in section 6.4 Literature in detail.

Part III — MIAK’s concrete proposal

MIAK proposes three measurable measures. None of them is about the level of the interest rate: under the central bank act the determination of the base rate is the exclusive competence of the Monetary Council, and MIAK respects that competence. The proposals concern the way in which the decision on changing the framework is taken and made public.

3.1 A public consultation document and impact analysis before the announcement of the modification of the target value (simultaneously with the September Inflation Report)

If the MNB announces the modification of the inflation target in the autumn, then at the same time as the announcement — not after it — a separate, downloadable consultation document should appear giving a quantified answer to at least four questions: (a) on the basis of what methodology the new target value is arrived at, (b) how large the estimated effect is on wage indexation, on pension indexation and on the instalments of the household loan stock over the next three years, (c) how the target value fits the Maastricht price stability criterion of euro adoption, and (d) what transitional rule applies to contracts and legal provisions in force which refer to the old target value. The document should be followed by a public comment period of at least 30 days, and the MNB should publish the professional opinions received. This is the direct application to monetary policy of the G19 radical transparency programme point: that programme point prescribes precisely that the counter-arguments to every significant economic policy proposal must be presented publicly. The risk side is set out in the table in Part IV; the essential point here is that a public prior debate does not slow the decision down but protects it from subsequent attacks on its legitimacy.

3.2 Voting figures and individual reasoning in the minutes of the Monetary Council (immediately, from the next rate decision)

The abridged minutes of the Monetary Council should appear in such a way that the voting figures are apparent from them, and — either naming the persons or anonymised, but item by item — the reasoning of those members who took a dissenting position. This is internationally established practice: both the Federal Reserve, which performs the central bank role in the United States, and the Swedish Riksbank publish the votes and the dissenting opinions. What is at stake in the requirement is not the accountability of persons but that the market and the public should see that the body genuinely deliberates. According to the measurement in the framework chapter of the IMF’s World Economic Outlook 2025 (see 6.4.1) it is precisely the transparency of the reaction function that makes credibility cheap — and the level of detail of the minutes is the cheapest instrument for this. The proposal is the monetary equivalent of the “public reasoning behind every economic policy decision” element of the G19 programme point.

3.3 Publication of an interest rate path forecast from the September Inflation Report (quarterly from the fourth quarter of 2026)

From the September Inflation Report onwards the MNB should publish its own conditional interest rate path forecast — together with the uncertainty band — as the Czech and Swedish central banks have done for years. At present, after every decision the body indicates that it will decide on the next step on the basis of the forthcoming Inflation Report; this is correct, but it gives no point of reference to analysts and to corporate planners. A published path is not a promise but a conditional forecast — and precisely for that reason it reduces the exchange rate and yield volatility arising from market guesswork. The proposal extends the logic of the G1 data-driven budget to the monetary side: if every budget item has a target indicator attached to it, then the rate decision should also have a published, subsequently verifiable path attached to it.

The three proposals are linked by a single principle: central bank independence does not mean the absence of publicity, but the absence of political instruction. These two are easily confused, and the confusion weakens precisely the independence — because if the body does not show how it thinks, then any critic may assume that it does not think independently either. According to the IMF’s data, the absence of a rule-based, professionally grounded, documented procedure punishes a country in the most measurable form of all.

Part IV — Expected effects and risks

Dimension Expected effect Risk
Economy Publishing the interest rate path and the target-value methodology narrows market guesswork, reduces the volatility of the yield premium and improves the predictability of corporate investment planning A published interest rate path can be read as a “promise”; if the body departs from it, credibility may suffer in the short run — this is handled by the uncertainty band and by explicit communication of the conditionality
Society Presenting in advance the effect on wage and pension indexation makes it possible for the trade unions and the pensioners’ interest organisations to react in time The 30-day consultation may become a formality if there is no substantive, item-by-item answer to the comments received — mere publication is not enough
Public administration The decision calendars of the monetary and the fiscal side become capable of being aligned: the autumn submission of the 2027 budget and the review of the target value are prepared with regard to each other The appearance of fiscal dominance: if the raising of the target value coincides in time with the higher deficit, the market will link the two even if there is no causal relation between them

The main tension lies in the fact that a modification of the inflation target can be read in two opposite directions. On the one hand it is a professionally defensible step: if the target value really is the highest in the EU in Hungary, and the government is moving onto a euro adoption path, then bringing the target closer to the euro area’s 2 per cent reference is a logical preparation. On the other hand, the same step announced at the same time as a higher deficit and a debt path that is now rising may create the impression that the monetary framework is being adjusted to the financing need. Between the two it is not intention but documentation that decides: if the methodology, the data and the chronology of the conduct of the review are public, and the work demonstrably began in the spring, before the modification of the deficit target, then the argument stands. If not, then even the best-intentioned decision will be recorded as fiscal pressure — and this record will be built into the risk premium for many years. The proposal tips to the risk side if publicity is exhausted in explanation after the announcement: subsequent justification is no substitute for prior debate.

Part V — Measurability and summary

5.1 What is worth following? (proposed KPIs)

MIAK proposes the following performance indicators (KPIs, Key Performance Indicators) for monitoring. These are not government decisions and not central bank commitments — they are proposals so that in 6, 12 and 24 months it can be judged whether the transparency of the framework has improved.

  • Consultation turnaround: the number of days elapsing between the announcement of the modification of the target value and the appearance of the accompanying public methodological document — the proposed value is 0 (simultaneous appearance); under present practice this is not measurable.
  • Level of detail of the minutes: what percentage of the abridged minutes of the Monetary Council contain the voting figures and an itemised summary of dissenting opinions — proposed target 100% from the first quarter of 2027.
  • Publication of the interest rate path: whether a conditional interest rate path forecast with an uncertainty band appears quarterly — proposed target: yes, from the fourth quarter of 2026.
  • Forecast accuracy: the average absolute deviation of the central bank’s one-year inflation forecast from the actual data, published annually — the forecast accuracy record (“track record”) element of the G19 programme point; proposed target: a deviation below 0.5 percentage points over the next two years.

5.2 Summary

MIAK’s key message is short: let us not talk about the base rate, but let us talk about the target value in good time. The determination of the level of the interest rate is the exclusive competence of the Monetary Council as laid down in law, and MIAK does not wish to comment on it. Changing the inflation target, however, is the rewriting of the nominal anchor of monetary policy: a step which affects contractual relationships running for decades, from wage agreements through pension indexation to loan contracts. MIAK therefore asks the central bank to publish the methodology and the impact analysis at the same time as the announcement, to allow 30 days for professional comments, and to show the voting figures in the minutes of the Monetary Council. MIAK asks nothing of the decision-maker other than what its own statutory mandate also supports: the preservation of the credibility of the price stability objective.

Of MIAK’s foundational values two are in play here. Data-drivenness, because one can argue for or against the modification of the target value only with figures — the effect on wage indexation and on loan instalments is not a matter of opinion but can be calculated; and if the central bank does not publish that calculation, the debate necessarily slides onto a political plane. And transparency, because publicity is, paradoxically, the strongest instrument for protecting central bank independence: a documented decision underpinned by votes and reasoning is much harder to present after the fact as the result of political pressure than an announcement born within a closed circle. Independence here is not a privilege but a burden of proof — and this burden can be borne most cheaply by means of a public procedure.

Part VI — Justifications and further sources

6.1 The framing of the press, spectrum by spectrum

The liberal-left and public affairs band highlighted the routine nature of the decision, placing the emphasis on the historical context. 444.hu’s article “Rate decision: the Magyar Nemzeti Bank has done something without precedent for more than ten years” made the rarity of three consecutive cuts the axis of the piece, and set out the 2016 precedent in detail — the framing is therefore about the normalisation of monetary policy, not about conflict. HVG’s material “Inflation is still low, the MNB’s mini rate-cutting cycle has continued” carries the same “we are proceeding as promised” narrative, and separately emphasises that since Mihály Varga’s announcement in June the body has kept to the path it signalled. 24.hu and ATV carried the decision in short, factual form, without an interpretative frame.

The economic band was the only one that also showed the tension behind the rate cut. Portfolio split the day in two in two separate articles: one analysed the central bank’s reasoning, emphasising that inflation deep below target would have allowed faster easing too, but that this was judged risky because of the tension in developed market bond yields; the other focused exclusively on the review of the target value announced by Mihály Varga, and linked it with the government’s intention of euro adoption, as well as with the 2027 budget and the three-year macro path expected in the autumn. This is the only reading in the spectrum which presents today’s decision not as an event but as a station in a change of framework already under way. Telex, through the analytical material of G7, carried the household side: that banks pay several times the rate of inflation on deposit rates.

The pro-government and conservative band chose the narrowest framing on this day. Both Magyar Nemzet’s article “Inflation helped, the base rate fell” and Mandiner’s material “The MNB has decided on the base rate” remained in a factual register, and did not touch on the review of the target value — that is, the greatest policy novelty of the day did not appear in this band. This absence is in itself significant: the modification of the central bank framework is at present not part of the political debate, even though it influences the wage and pension path of the coming years more strongly than many far more loudly discussed questions.

6.2 Facts and data

Indicator Value Date / source
Central bank base rate 5.50% (–25 basis points) Monetary Council, 25 August 2026
Overnight deposit / lending rate 4.50% / 6.50% MNB communiqué, 25 August 2026
Annual inflation 1.2% KSH, July 2026
Core inflation 1.9% MNB communiqué, July data
Inflation target / tolerance band 3% / 2–4% price stability objective under the central bank act
Estimated real interest rate approx. 4.3 percentage points 5.5% base rate – 1.2% inflation
GDP growth +1.7% (year on year) preliminary data, Q2 2026
Forint / euro 361–363 trading on 25 August 2026
Most recent similarly low base rate May 2022 compilation by 444.hu

According to the MNB’s communiqué the pace of price increases will remain below the 3 per cent target both in the remainder of this year and during 2027, and will return to the target in the first half of 2028. The body indicated that it will decide on the further path of the base rate on the basis of the September Inflation Report. According to the MNB’s assessment, in the region the Czech and the Romanian central banks decided in August to hold rates, while the European Central Bank and the American Federal Reserve did not change their policy rates in July — the Hungarian easing is therefore an independent path in regional comparison too.

6.3 Policy dimensions

  • Economy (programme points) — the transparency of the monetary framework falls under the requirement of public reasoning for economic policy decisions; publication of the interest rate path is the monetary equivalent of data-driven planning (programme point ID: G19, G1);
  • Economy (background material) — from the point of view of the public debt sustainability framework the real interest rate is the most important input variable: a high positive real interest rate directly increases the debt service burden (programme point ID: G23);
  • Social policy (background material) — pension indexation and the real wage path depend directly on measured inflation and on the target value; modification of the target value is therefore also a social policy question, not only a monetary one;
  • Transparency and anti-corruption policy (programme points) — the documentation of central bank decision-making falls under the same logic of accountability as that of the use of public money.

6.4 Literature in detail

6.4.1 IMF: World Economic Outlook 2025

Chapter 2 of the publication examines the question of why emerging economies have become more resistant to risk-aversion shocks since the financial crisis of 2008. The answer is not luck but the quality of frameworks: the introduction of inflation targeting and a more flexible exchange rate regime improved the capacity to absorb external shocks, and long-term inflation expectations became better anchored, which reduced the pass-through of exchange rate depreciation into prices. According to the chapter it is precisely for this reason that the weight given to exchange rate fluctuation in central banks’ reaction functions has become smaller: credibility has done part of the work by itself. The document’s policy recommendation is unambiguous: clear communication of policy objectives and of the central bank reaction function helps to anchor inflation expectations and strengthens credibility, which eases policy trade-offs.

Box 2.3 of the volume (“Macroeconomic Effects of Undermining Central Bank Independence”) measures the reverse of this. It classified 134 changes of central bank governor in 11 advanced and 16 emerging economies since 2000 according to whether the appointment or the dismissal followed a clear, rule-based procedure, whether it treated professional competence as a priority, and whether it preserved the operational independence of the central bank. Six months after politically motivated changes the real interest rate fell by 1.6 percentage points and inflation expectations rose by 1.7 percentage points relative to countries with similar macroeconomic fundamentals which had not experienced such a change. The key finding of the box is methodological: this relationship does not hold with de jure independence indicators, that is, those laid down in legislation — only with the actual procedure. An earlier box of the volume, reviewing the development of central bank frameworks, states the same in normative form as well:

“Limiting the scope for political interference is essential to credibly establishing a commitment to price stability.” (IMF: World Economic Outlook 2025, box 2.2)

Translated to the Hungarian situation: the review of the inflation target is precisely the moment at which de jure and actual independence may part company. According to the letter of the central bank act the body decides freely; whether that decision also looks credible is shown solely by the documentation of the procedure. If the methodology, the data and the chronology of the review are public, the argument stands. If not, the market will draw the same conclusion that the IMF’s data measure — even if the decision is substantively correct.

📖 Source: IMF: World Economic Outlook 2025

6.4.2 Paul Krugman: The Return of Depression Economics

The central proposition of Krugman’s volume is that crises arising from a collapse of the demand side have not disappeared from modern economies, we have merely forgotten how to handle them. One of the book’s sharpest case descriptions is Brazil in 1998: the country was already in a slowing economy, unemployment was rising, and the place of traditionally high Brazilian inflation had been taken by price stability, indeed by fears of deflation. The stabilisation programme nevertheless prescribed higher taxes, expenditure cuts and the maintenance of an extremely high level of interest rates.

“So what did the program—intended, remember, for a country with a slowing economy and no inflation to speak of—involve? Higher taxes, reduced government spending, and a continuation of extremely high interest rates.” (Paul Krugman: The Return of Depression Economics)

Krugman’s argument is not that a high interest rate is always a mistake, but that interest rate policy has to be adjusted to the actual inflation and demand situation, not to the reflexes of an earlier period. Today’s Hungarian situation is not a crisis situation — GDP is growing, unemployment is low in international comparison — but the structure is familiar: a base rate of 5.5 per cent alongside inflation of 1.2 per cent means a positive real interest rate of about 4.3 percentage points, which is strict even by historical standards. The central bank’s communiqué accepts this deliberately, because it expects foreign exchange market stability from the positive real interest rate. MIAK does not dispute this deliberation, which falls within the central bank’s competence — but in Krugman’s frame it becomes visible that the price of strictness is investment activity, and that it is worth stating this price explicitly and in figures, not only the stability benefit.

📖 Source: Paul Krugman: The Return of Depression Economics

6.4.3 Joseph E. Stiglitz: Globalization and Its Discontents

A recurring proposition of Stiglitz’s volume is that the quality of economic policy decisions is determined not primarily by the expertise of the decision-makers but by the openness of the procedure. The common pattern of the cases described in the book: consultation behind closed doors excludes those voices which could signal the errors of the decision in time, and for that reason a decision taken within a narrow circle is regularly worse than the expertise of the participants would warrant. Stiglitz separately emphasises that citizens of developed democracies treat transparency not as a favour but as a right — an inseparable part of accountability.

“Citizens regard transparency, openness, knowing what government is doing, as an essential part of government accountability. Citizens regard these as rights, not favors conferred by the government.” (Joseph E. Stiglitz: Globalization and Its Discontents)

One important distinction is necessary. The target of Stiglitz’s criticism is the decision-making of international financial institutions, not central bank independence — indeed, the operational independence of a central bank protects precisely against day-to-day politics influencing the rate decision. The two principles are not opposed to each other: operational independence means that the body receives no instruction, and transparency means that the reasons for the decision can be known. The review of the inflation target falls particularly within the scope of Stiglitz’s argument because this step is not an operational decision but a modification of the interpretation of the mandate — and the ultimate source of the mandate is the legislature, that is, the public. According to the announcement by the governor of the MNB, the central bank will inform the government of the result of the review; MIAK’s proposal is merely that the public should receive the same information at the same time.

📖 Source: Joseph E. Stiglitz: Globalization and Its Discontents

6.5 International comparison

Publication of an interest rate path forecast is not a novelty: the Swedish Riksbank since 2007 and the Czech National Bank since 2008 have published their own conditional interest rate path with an uncertainty band, and both central banks also regularly publish the voting figures of the body and the dissenting opinions. The European Central Bank issues a detailed “Account” document of its monetary policy meetings, presenting the main arguments of the debate — though not the votes attached to individuals. There is likewise an established model for the procedure of modifying an inflation target: in 2019–2020 the Federal Reserve, which performs the central bank role in the United States, conducted a nationwide, public series of consultations under the name “Fed Listens” on the review of the monetary policy framework, and published the final result in a separate, reasoned framework document. In the United Kingdom the inflation target of the Bank of England is formally determined by the Chancellor of the Exchequer, in a public letter confirmed annually — there, therefore, the target value is expressly part of the democratic mandate, while the choice of instruments belongs to the body. These models differ from one another in who determines the target, but they agree in one respect: the target value is never the result of a closed professional decision. MIAK’s proposal follows this common denominator.

Economy

  • G19 — Radical transparency in economic decision-making
  • G1 — Data-driven budget
  • G23 — Public debt sustainability framework
  • G15 — Countercyclical fiscal stabiliser
  • G22 — Financial stability monitoring and shadow banking regulation

Proposed new programme point: Monetary framework transparency minimum — for the Economy area: a mandatory public consultation procedure for central bank target-value and framework modifications, with publication of voting figures and of a conditional interest rate path.

6.7 List of sources

Press sources (MIAK press monitor, 26 August 2026 — topic 2):

Knowledge base references (literature):

  • 📖 IMF: World Economic Outlook 2025
  • 📖 Paul Krugman: The Return of Depression Economics
  • 📖 Joseph E. Stiglitz: Globalization and Its Discontents

MIAK internal materials:

  • MIAK policy area: Economy (programme points; programme point ID: G19, G1, G23)
  • MIAK policy area: Social policy (background material)
  • MIAK policy area: Transparency and anti-corruption policy (programme points)
  • MIAK press monitor, 26 August 2026 — topic 2, score: 92/100

Supplementary public data sources:

  • KSH — monthly flash report on the consumer price index
  • MNB — Inflation Report (September edition), communiqués of the Monetary Council
  • Eurostat — harmonised index of consumer prices (HICP)

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