In a move aimed at sustaining its monetary easing efforts, Hungary’s central bank reduced its key interest rate by 25 basis points to 5.50% on Tuesday. This adjustment, marking the third consecutive rate cut of the same magnitude this year, positions the rate at its lowest since April 2022. The central bank’s decision aligns with a backdrop of easing inflation, which dipped to 1.2% in July, while core inflation settled at 1.9%.
The Monetary Council also adjusted the interest rate corridor by trimming both ends by 25 basis points. Consequently, the overnight deposit rate now stands at 4.50%, and the overnight lending rate is at 6.50%. These changes reflect the central bank’s strategy to manage inflation rates, which are anticipated to stay below the 3% target throughout the remainder of this year and into 2027. A return to the target is expected in the first half of 2028.
Economic growth in Hungary showed a year-on-year increase of 1.7% in the second quarter, driven largely by gains in the services sector and enhanced industrial output. However, agricultural output faced challenges due to drought conditions, impacting overall economic performance.
Looking forward, the central bank emphasized that future interest rate decisions will be contingent upon several factors. These include ongoing inflation trends, stability in the exchange rate, and broader global economic risks such as geopolitical tensions and high energy prices, which could influence economic stability.