Hungary's proposed 2027 budget would narrow its deficit but leave it above the euro-entry ceiling, keeping a key adoption test unmet as the government seeks to raise public pay and family benefits.
The government expects a shortfall equal to 7.5% of gross domestic product in 2026 and targets 4.9% in 2027. It also projects public debt at 77.2% of GDP next year, above the European Union's 60% reference level. ING said the government's longer-term plan would reduce the deficit to 2.8% of GDP by 2030.
Euro adoption requires more than meeting the 3% deficit ceiling. Countries must also satisfy debt, inflation, interest-rate and legal requirements and spend at least two years in Exchange Rate Mechanism II. The European Central Bank said in June that Hungary was under an excessive deficit procedure and was not participating in the exchange-rate mechanism.
The proposed budget would direct 677 billion forints to public-sector pay increases and double family allowances. The government expects a new wealth tax to collect about 200 billion forints and also proposes higher taxes on some large companies.
At its Oct. 20 meeting, Hungary's central bank, the Magyar Nemzeti Bank (MNB), left the base rate at 5.50%. It reported September inflation of 1.6% and projected an average of 3.1% for 2027. The bank cited expensive energy, rising yields and global uncertainty in explaining its cautious approach.
ING EMEA FX and fixed-income strategist Frantisek Taborsky said investors' long positions in Hungarian fixed income had become crowded after a bond rally, leaving room for further profit-taking. Currency positions were likely less crowded, he said, and the euro-forint rate's next move would probably depend on global developments. That extends an earlier warning about crowded Hungarian bond positions.
ING described the euro as trading between 362 and 364 forints during the two weeks before its Oct. 21 note. For Oct. 21, the European Central Bank listed a daily reference rate of 365.00 forints per euro, while the MNB listed 365.28. Those rates are daily benchmarks, not real-time transaction prices.
The MNB plans to publish minutes of its Oct. 20 decision on Nov. 4. Its next policy meeting is scheduled for Nov. 17.
