Hungary's Central Bank Endorses Stronger Forint for Inflation Control, BofA Says

Hungary's central bank has indicated that a stronger forint is a core element of its strategy to achieve a revised inflation target, according to an analysis of the bank's recent publications by Bank of America.

A Tool for Disinflation

The National Bank of Hungary (NBH) believes that a nominal appreciation of its currency can help offset persistently high services inflation, as noted in background analysis accompanying its new CPI target. The central bank links this inflation to strong wage convergence with the euro area, with Hungarian wages currently rising at 7-8% year-over-year.

According to the BofA report, the NBH's assessment concludes that forint strength is "materially more useful for disinflation than it is damaging for growth." The central bank also reportedly found no identifiable long-term connection between nominal appreciation and export performance within the European Union, reinforcing its policy view.

Policy Context and Convergence

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The NBH has set its new CPI target 0.5 percentage points higher than the European Central Bank's. The bank frames this as a way for inflation to contribute to price level convergence with the euro area, which it says eases the "excessive burden on the real economy" that a more rapid currency appreciation would create.

This policy direction follows a period where the NBH acknowledged the forint's real exchange rate has significantly underperformed its Central and Eastern European peers over the past decade.

Wage Pressures on the Horizon

A key factor for future policy will be the incoming government's stance on wages. A decision is pending on a plan to raise the minimum wage by 14% in 2027, a proposal that could be renegotiated based on economic conditions. The NBH has emphasized that for its strategy to succeed, overall wage growth must normalize to levels consistent with productivity gains.