Hungary’s central bank has continued its strategy of monetary easing by reducing the 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 to its lowest since April 2022. The decision aligns with the central bank’s observation of easing inflationary pressures, with the overall inflation rate having dropped to 1.2% in July and core inflation settling at 1.9%.
In addition to the main rate adjustment, the Monetary Council also adjusted the interest rate corridor by lowering both ends by 25 basis points. Consequently, the overnight deposit rate has been reduced to 4.50%, while the overnight lending rate now stands at 6.50%. The central bank has projected that inflation will continue to stay below its target of 3% for the remainder of this year and through to 2027, anticipating a return to the target level in the first half of 2028.
Economic growth in Hungary was noted at a 1.7% increase year-on-year during the second quarter, driven primarily by strong performance in services and industrial output. However, agricultural output was adversely affected by drought conditions, which constrained further growth. The central bank emphasized that future adjustments to interest rates will depend heavily on various factors, including ongoing inflation trends, currency exchange-rate stability, and global economic conditions.
Particular attention will be paid to risks stemming from geopolitical tensions and high energy prices, as these elements could influence the economic landscape significantly. The central bank’s cautious approach underscores its commitment to maintaining economic stability while navigating these uncertainties.