Hungary Cuts Inflation Target to 2.5%, Fueling Euro-Adoption Bet and Record Bond Inflows

Hungary's central bank lowered its inflation target to 2.5% from 3%, effective 2028, a signal it said "supports meeting the requirements for euro adoption." The move boosts demand for forint-denominated bonds, which have outperformed Polish and Romanian peers. The 10-year benchmark yield trades at 5.64%, below Poland's 6.16% and Romania's 7.29%. Foreign holdings hit 34% of local bonds by end-August, the highest since 2019. Deutsche Bank said overseas investors poured $13.5 billion into the market year-to-date, including $10 billion after Peter Magyar's April election victory, the largest annual inflow on record. Analysts see room for further yield declines if Hungary delivers on deficit reduction. The gap is projected at 7.5% of GDP this year, against the 3% euro-entry threshold. ING projects the 10-year yield could fall to 4.9% by year-end. A Reuters survey puts ERM-2 entry in 2029-2030 and euro adoption in 2032.