Hungary’s central bank has furthered its monetary easing strategy by reducing the key interest rate by 25 basis points, now standing at 5.50%. This adjustment, announced on Tuesday, marks the third consecutive rate cut of this magnitude this year, lowering the key rate to its lowest point since April 2022. The Monetary Council additionally adjusted the interest rate corridor, cutting both the overnight deposit rate to 4.50% and the overnight lending rate to 6.50% by the same margin.
The decision to ease monetary policy comes as Hungary experiences a decline in inflation, which dropped to 1.2% in July, with core inflation also reducing to 1.9%. The central bank anticipates that inflation will remain below its 3% target for the remainder of this year, extending into 2027, before gradually aligning with the target in the first half of 2028. This outlook provides the central bank with room to maneuver in terms of interest rates as it navigates economic conditions.
Despite the monetary adjustments, Hungary’s economy has shown resilience, growing 1.7% year-on-year in the second quarter. This growth is attributed to robust performance in the services sector and a boost in industrial output, although drought conditions have adversely affected the agricultural sector. These mixed economic signals are shaping the central bank’s cautious approach to future rate decisions.
The bank’s future monetary policy will hinge on several factors, including inflation trends, the stability of the exchange rate, and global economic risks. Key concerns include geopolitical tensions and high energy prices, which could influence Hungary’s economic trajectory. The central bank remains vigilant, assessing these risks as it considers further adjustments to its interest rate policy.