In a continued effort to ease monetary policy, Hungary’s central bank reduced its key interest rate by 25 basis points, bringing it down to 5.50% on Tuesday. This marks the third successive rate cut of this magnitude in 2023, lowering the benchmark rate to its lowest point since April 2022. The central bank’s Monetary Council also adjusted the interest rate corridor, decreasing both the overnight deposit rate and the overnight lending rate by 25 basis points to 4.50% and 6.50%, respectively.
The decision comes as inflationary pressures continue to subside, with July’s inflation rate falling to 1.2% and core inflation dropping to 1.9%. The central bank anticipates that inflation will remain below its 3% target throughout the remainder of the year and well into 2027. It forecasts a return to the target inflation rate by the first half of 2028, assuming current trends persist.
Hungary’s economic performance showed a year-on-year growth of 1.7% in the second quarter, driven largely by the service sector and increased industrial production. However, severe drought conditions have negatively impacted agricultural output, posing challenges to the overall economic growth narrative.
Future rate decisions by the central bank will hinge on multiple factors, including ongoing inflation trends, the stability of the exchange rate, and broader global economic risks. Particular attention will be paid to geopolitical tensions and the persistent challenge of elevated energy prices, which could influence the economic landscape in the months ahead.