Hungarian central bank cuts the base rate again

At its meeting today, the Monetary Council of the National Bank of Hungary cut the base rate by 50 basis points to 7.25%.

During the one-year period of interest rate cuts, the policy rate fell from 18%, but the process may be coming to an end, or at least slowing down significantly.

Experts were expecting a half-percentage point cut, so the market was unsurprised. It is important to stress that a few unexpected events in the recent period have fundamentally impacted interest rate policy. Inflation has risen minimally in line with forecasts, the forint has strengthened amid improving global capital market sentiment, and financial market stability has not been challenged. In these circumstances, there was little reason for the MNB to deviate from its interest rate policy plan.

The central bank plans to continue to cut policy rates until mid-year, although not by the 100-75 basis points seen at the beginning of the easing period, but only by the 50 basis points seen in April.

The stable exchange rate of the forint, which has even strengthened in recent weeks, means that the weakening of the Hungarian currency does not threaten prices. Inflation could be positively influenced by fuel prices, which fell significantly in May as oil became cheaper and domestic retail prices settled in line with the average in neighbouring countries, following government pressure.

Interest rate cuts may continue for the rest of the year, but at an increasingly slower pace.The market expects to see only a few tens of basis point cuts from the second quarter onwards, with the base rate remaining at around 6% at the end of the year.

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