On Tuesday, Hungary’s central bank continued its trend of easing monetary policy by reducing the key interest rate by 25 basis points, bringing it down to 5.50%. This adjustment marks the third consecutive rate cut of this magnitude this year, positioning the key rate at its lowest point since April 2022. The Monetary Council also adjusted the parameters of the interest rate corridor, reducing both the overnight deposit rate to 4.50% and the overnight lending rate to 6.50%, each by 25 basis points.
The central bank’s decision aligns with the recent easing of inflationary pressures. In July, the inflation rate dropped to 1.2%, while core inflation declined to 1.9%. These figures have prompted the central bank to project that inflation will remain below its 3% target throughout the remainder of this year and extend into 2027, with a sustainable return to the target anticipated in the first half of 2028.
Hungary’s economic performance showed resilience, with a 1.7% year-on-year growth recorded in the second quarter. This growth was primarily driven by robust activities in the services sector and increased industrial output. However, the agricultural sector faced challenges due to drought conditions, which affected its overall contribution to the economy.
Looking ahead, the central bank emphasized that its future decisions regarding interest rates will be influenced by several factors, including the trajectory of inflation, the stability of the exchange rate, and global economic risks. Among these risks, geopolitical tensions and elevated energy prices are particularly noted as significant considerations that could impact the bank’s monetary policy direction.