Monetary Council Cuts Base Rate by 25bp to 6.25%

The Monetary Council of the National Bank of Hungary (MNB) decided to cut the central bank base rate by 25bp to 6.25% at its policy meeting on Tuesday, MTI reports.

The policy makers had not changed the key rate since September 2024.

In a statement released after the meeting, the Council said that "favourable developments in underlying inflation and the stability of financial markets allowed for a cautious reduction in interest rates," pointing to a drop in headline CPI to 2.1% in January.

The Council noted that the central bank's latest forecast shows CPI under the 3% target in the coming months, before temporarily rising close to the upper bound of the +/-1pp tolerance band, according to the NBH's latest forecast.

"The central bank will continue to ensure positive real interest rates in order to achieve the inflation target in a sustainable manner," the Council said.

The Council reiterated the need for a "careful and patient" approach to monetary policy due to risks to the inflation outlook, and said price stability can be achieved "through tight monetary conditions".

"The Council is constantly assessing the impact of incoming macroeconomic data and financial market developments on the inflation outlook, based on which it will take decisions on the level of the base rate in a cautious and data-driven manner from meeting to meeting," the statement said.

At a press conference after the meeting, central bank governor Mihály Varga said the 25bp rate cut was the only option discussed. He added that the decision did not mark the start of a loosening cycle.

He added that the rate cut was made possible by favorable inflation developments and financial market stability.