Policy Makers Cut Base Rate by 25 Basis Points to 5.75%

The Monetary Council of the National Bank of Hungary (MNB) decided to cut the central bank base rate by 25 basis points to 5.75% at a monthly policy meeting on Tuesday.

The Council also lowered the central bank's symmetric interest rate corridor by 25 basis points, bringing the O/N deposit rate to 4.75% and the O/N collateralized loan rate to 6.75%.

The Monetary Council is committed to achieving the inflation target in a sustainable manner and constantly assesses the inflation outlook, global developments, and Hungary’s risk premium. Maintaining the stability of domestic financial markets, especially that of the foreign exchange market, anchors inflation expectations and thus contributes to achieving price stability.

The primary objective of the National Bank of Hungary (MNB) is to achieve and maintain price stability. Without prejudice to its primary objective, the MNB preserves financial stability and supports the Government’s economic policy, as well as its policy on environmental sustainability.

According to the Monetary Council, global investor sentiment continues to be shaped by geopolitical developments in the Middle East. Tensions between the USA and Iran appear to be escalating, and there is increased uncertainty regarding the resolution of the conflict. Global oil prices and European gas prices have risen in recent weeks.

Markets expect both the European Central Bank and the Federal Reserve to hike interest rates once before the end of the year. The Bank of Japan may also continue to raise its policy rate. In the CEE region, the Polish and Romanian central banks left their policy rates unchanged in July. Long-term yields in developed markets remain high in a historical comparison and have increased in the past month.

Domestic industrial production and retail sales continued to increase in May. Private sector wage dynamics were slower than in previous years, but there was a strong rise in real wages. The unemployment rate remains low in an international comparison. Based on incoming data, the macroeconomic outlook is in line with the June forecast.

Looking ahead, if favorable developments persist, the Council – while maintaining a positive real interest rate – sees room to further decrease the base rate throughout the summer, with a decision on the continuation to be made based on the September Inflation Report.