In a continued 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 adjustment is part of an ongoing trend, marking the third such reduction this year. Alongside this, the Monetary Council also decreased both ends of the interest rate corridor by 25 basis points, with the overnight deposit rate now at 4.50% and the overnight lending rate at 6.50%. These actions collectively bring the key rate to its lowest point since April 2022.
The central bank’s decision to cut rates again is largely attributed to a decline in inflation, which decreased to 1.2% in July. This trend is mirrored in core inflation, which dropped to 1.9%. The bank projects that inflation will remain under the 3% target for the remainder of this year and into 2027, with expectations of achieving a sustainable return to the target by the first half of 2028.
Economic growth in Hungary showed a positive trajectory in the second quarter, achieving a 1.7% increase year-on-year. This growth was bolstered by strong performances in the services sector and industrial output. However, the agricultural sector faced challenges due to drought conditions that have impacted productivity.
Looking ahead, the central bank has stated that its future rate decisions will be influenced by a variety of factors. These include ongoing developments in inflation, the stability of the exchange rate, and broader global economic risks. Among these risks are geopolitical tensions and persistently high energy prices, which could affect economic stability.