National Bank Cuts Base Rate by 75 Basis Points

The Monetary Council of the National Bank of Hungary (MNB) cut the base rate by 75 basis points to 12.25% at its interest rate decision meeting on Tuesday, and lowered the two sides of the interest rate corridor by the same amount. The Hungarian currency, the forint, immediately started to weaken.

The MNB last raised the base rate on 27 September last year, by 125 basis points to 13.0%, and announced the end of the base rate hike cycle after the meeting. However, monetary tightening continued in October by other means. In an extraordinary announcement, the MNB raised the interest rate on its regular overnight deposit tenders to 18%, and then cut it by 100 basis points at each rate-setting meeting from May onwards.   

At its meeting a month ago, the Board decided to abolish the overnight deposit rate tender, thus making the base rate the effective central bank rate again after 11 months and making the interest rate corridor symmetric around the base rate with a band of +/- 100 basis points.

The forint weakened to a daily low against major currencies five minutes after the MNB decision was made public – the HUF/EUR rate went up from 381.48 to 383.23.

MNB deputy governor Barnabás Virág was of the view in an online background briefing on Tuesday that strong disinflation in the Hungarian economy and a reduction in the country's vulnerability made it possible to cut the base rate in October.