In a continued effort to ease monetary policy, Hungary’s central bank reduced the key interest rate by 25 basis points, bringing it down to 5.50% as of Tuesday. This decision is part of an ongoing trend, marking the third consecutive rate cut of this magnitude within the year. Additionally, adjustments were made to the interest rate corridor, with both the overnight deposit rate and the overnight lending rate being lowered by 25 basis points, now standing at 4.50% and 6.50%, respectively. This brings the key rate to its lowest point since April 2022.
The central bank’s decision comes amid signs of easing inflationary pressures in the country. Inflation dropped to 1.2% in July, while core inflation saw a decrease to 1.9%, providing room for the bank to continue its monetary easing path. Projections by the central bank suggest that inflation will remain below the 3% target for the remainder of the year, persisting through 2027, with expectations of a sustainable return to the target by the first half of 2028.
Economic growth in Hungary has shown a positive trajectory, with the economy expanding by 1.7% year-on-year in the second quarter. This growth has been largely driven by the services sector and an increase in industrial output. However, adverse weather conditions, specifically droughts, have negatively impacted agricultural productivity, which has been a drag on the overall economic performance.
Looking ahead, the central bank emphasized that future monetary policy decisions will be closely linked to several factors. These include the trajectory of inflation, the stability of the exchange rate, and broader global economic risks. Geopolitical tensions and high energy prices are among the external risks that the bank is monitoring, given their potential impact on the Hungarian economy.