Hungary’s Central Bank Cuts Base Rate by 75 Basis Points
Hungarian Central Bank Cuts Base Rate by 75 Basis Points
The Hungarian central bank, known as NBH, has made the decision to cut the base rate by 75 basis points to 10.75 percent at its regular policy meeting on Tuesday. This latest reduction is in line with the scale of the previous rate-setting meeting held in November.
In addition to the reduction in the base rate, the bank’s Monetary Council has also decided to lower the symmetric interest rate corridor, bringing the O/N deposit rate to 9.75 percent and the O/N collateralised loan rate to 11.75 percent.
The decision to cut the rates was prompted by concerns surrounding global disinflation and volatility in international investor sentiment. The Council emphasized the need for a careful approach to monetary policy in light of these risks.
According to the Council’s statement released after the meeting, the decision to further reduce the base rate and the optimal pace of these reductions will be made based on incoming macroeconomic data and the outlook for inflation.
The Council discussed the NBH’s latest quarterly Inflation Report at the meeting and projected a continued decline in headline CPI and core inflation in the coming months. They foresee CPI to be around 6.0 percent at the end of 2023 and anticipate strong disinflation in Q1 2024, with a subsequent slowing down.
Looking ahead, the NBH forecasts average annual inflation of 17.6-17.7 percent for 2023, 4.0-5.5 percent in 2024, and 2.5-3.5 percent in 2025.
The Council also projected the budget deficit to be between 5.2 percent and 6.0 percent of GDP in 2023, while the state debt ratio is expected to drop to around 73 percent of GDP by year-end.
Deputy bank governor Barnabás Virág, speaking at a press conference after the meeting, highlighted the gradual pickup in the economy and the improvement in Hungary’s external balances. He noted that international investors’ appetite for risk had improved since the previous monthly policy meeting and that an agreement on the release of some of Hungary’s EU funding had improved the country’s risk assessment and external financing capacity.
Virág emphasized the need for continued disinflation in 2024 to achieve price stability, adding that positive real interest rates would support disinflation. He also mentioned that the Council had considered various risk scenarios affecting the inflation forecast, with a sustained improvement in the risk environment potentially increasing the room for maneuver of monetary policy.
Overall, the decision to cut the base rate aligns with the NBH’s efforts to address global disinflation and volatility in international investor sentiment while supporting economic growth and stability in the coming years.
