Hungary’s central bank has furthered its monetary easing strategy by trimming the key interest rate by 25 basis points to 5.50% on Tuesday. This effort to stimulate economic activity marks the third successive rate reduction of the same magnitude this year, bringing the rate to its lowest point since April 2022. The Monetary Council also adjusted the interest rate corridor, lowering both ends by 25 basis points. Consequently, the overnight deposit rate now stands at 4.50%, while the overnight lending rate has shifted to 6.50%.
The decision to reduce rates was largely influenced by a significant decrease in inflation, which dropped to 1.2% in July. Core inflation also saw a decline, settling at 1.9%. The central bank anticipates that inflation will remain below its 3% target for the remainder of the year and continue on this trajectory until 2027, with expectations of returning to the target in a sustainable manner by the first half of 2028.
Economic growth in Hungary has shown resilience, with a year-on-year increase of 1.7% in the second quarter. This growth has been driven by robust performance in the services sector and a boost in industrial production. However, the agricultural sector faced challenges due to drought conditions, which impacted its output.
Looking ahead, the central bank noted that future decisions regarding interest rates will be contingent upon several factors. These include the trajectory of inflation, the stability of the exchange rate, and broader global economic risks. Among the concerns are geopolitical tensions and the continued impact of elevated energy prices, which could influence the central bank’s monetary policy moving forward.