In its ongoing effort to ease monetary policy, Hungary’s central bank has reduced its key interest rate by 25 basis points, setting it at 5.50% as of Tuesday. This marks the third consecutive cut of the same magnitude this year, bringing the rate down to levels not seen since April 2022. The decision to lower rates comes amid a backdrop of decreasing inflation, which dropped to 1.2% in July, with core inflation also falling to 1.9%.
Alongside the reduction in the key interest rate, the Monetary Council also adjusted the interest rate corridor, bringing down both the overnight deposit rate to 4.50% and the overnight lending rate to 6.50%. The central bank’s actions are motivated by projections that inflation will remain below the 3% target throughout the remainder of this year and into 2027, with expectations of it stabilizing at the target by the first half of 2028.
Hungary’s economic performance in the second quarter showed a year-on-year growth of 1.7%, bolstered by a robust services sector and increased industrial output. However, growth was partially offset by adverse conditions in agriculture, largely attributed to droughts. The central bank’s future monetary policy decisions will be influenced by several factors, including inflation trajectories, exchange rate stability, and broader global economic risks.
The central bank has highlighted that global uncertainties such as geopolitical tensions and elevated energy prices continue to pose risks to economic stability. These elements will play a crucial role in shaping the bank’s approach to future interest rate adjustments, aimed at maintaining economic equilibrium while fostering growth.