In a continued effort to ease monetary policy, Hungary’s central bank has reduced its key interest rate by 25 basis points, bringing it to 5.50% as of Tuesday. This marks the third successive rate cut of the same magnitude within the year, positioning the key rate at its lowest point since April 2022. Alongside this, the Monetary Council has also adjusted the interest rate corridor, lowering both the overnight deposit rate and the overnight lending rate by 25 basis points to 4.50% and 6.50% respectively.
The decision to reduce rates is largely driven by easing inflationary pressures. In July, inflation dropped to 1.2%, and core inflation decreased to 1.9%. The central bank projects that inflation will remain under the 3% target for the remainder of the year and continue below this threshold into 2027, anticipating a return to the target range by the first half of 2028.
Economic growth in Hungary has shown resilience, with a 1.7% year-on-year increase in GDP during the second quarter. This growth has been supported primarily by robust performance in the services sector and stronger industrial output. However, the economy faces challenges, notably from drought conditions that have adversely affected the agricultural sector.
Looking ahead, the central bank stated that its future monetary policy decisions will be informed by various factors, including inflation trends, the stability of the exchange rate, and broader global economic risks. These risks encompass geopolitical tensions and persistently high energy prices, which could influence economic stability going forward.