In a continuation of its monetary easing strategy, Hungary’s central bank has reduced its key interest rate by 25 basis points, setting it at 5.50% as of Tuesday. This decision marks the bank’s third consecutive rate cut of the same magnitude this year. As part of the adjustments, the Monetary Council also decreased the interest rate corridor by 25 basis points, lowering the overnight deposit rate to 4.50% and the overnight lending rate to 6.50%.
The central bank’s actions come in response to declining inflation rates, which have eased to 1.2% as of July, with core inflation decreasing to 1.9%. This reduction has resulted in the key interest rate reaching its lowest point since April 2022. Looking ahead, the central bank anticipates that inflation will remain below its 3% target for the remainder of the year and continue through to 2027, before achieving a sustainable return to target by the first half of 2028.
Economic growth in Hungary showed a year-on-year increase of 1.7% during the second quarter, driven primarily by advancements in services and a stronger industrial output. However, the agricultural sector faced challenges due to drought conditions, which tempered overall growth to some extent.
The central bank has indicated that future rate decisions will hinge on several factors, including the progression of inflation, stability in the exchange rate, and various global economic risks. These risks encompass geopolitical tensions and persistently high energy prices, which may influence Hungary’s economic landscape moving forward.