Hungary’s central bank has taken another step in its ongoing monetary easing strategy, lowering the key interest rate by 25 basis points to 5.50%. This decision, announced on Tuesday, also involved a reduction in the interest rate corridor, with both the overnight deposit rate and the overnight lending rate being decreased by 25 basis points, settling at 4.50% and 6.50% respectively.
This adjustment marks the third consecutive rate cut of 25 basis points this year, bringing the key interest rate to its lowest point since April 2022. The central bank’s decision to reduce rates is primarily influenced by a significant drop in inflation, which stood at 1.2% in July. Core inflation also saw a decrease, reaching 1.9%.
The bank anticipates that inflation will remain below its target of 3% throughout the remainder of this year and into 2027. A sustainable return to this target is expected in the first half of 2028, according to the bank’s projections.
In the second quarter, Hungary’s economy experienced a 1.7% year-on-year growth, bolstered by the services sector and an upswing in industrial output. However, agricultural activities were negatively impacted by prevailing drought conditions, which hindered growth in that sector.
Looking forward, the central bank has stated that future interest rate decisions will be guided by developments in inflation, the stability of the exchange rate, and global economic risks. These risks include ongoing geopolitical tensions and persistently high energy prices, which continue to pose challenges to economic stability.