Hungary cuts key interest rate, buoyed by US Fed Reserve decision

Easing inflation in Hungary, along with movement from other central banks, has nonetheless allowed the MNB to resume its easing cycle.

Although the rate of price rises was flat on a monthly basis in August, year-on-year inflation fell to 3.4%.

Hungary’s ability to lower borrowing costs has been boosted by the Federal Reserve’s decision to cut its benchmark interest rate by a half-point last week.

That was the first time the US central bank had lowered borrowing costs in more than four years.

The European Central Bank, meanwhile, reduced its deposit facility rate by a quarter-point to 3.5% earlier this month.

Hungary’s benchmark rate is still, however, the joint highest figure in the European Union – tied with Romania.

“The central bank’s cautious, patient and stability-oriented approach was not damaged by today’s decision,” ING’s senior economist for Hungary, Péter Virovácz, told Euronews.

“The downside surprise in the August inflation data (both headline and core), the relative market stability (with the EUR/HUF trading in a tight range) and the Fed’s 50bp jumbo rate cut were more than enough reasons to cut today after a brief pause in August,” he added.

Barna Szabó, chief economist at the Equilibrium Institute, told Euronews that despite the cut, “the policy stance remains tight [and] real interest rates remain high”.

“MNB policy is particularly strict considering that inflation is within the 3% plus/minus 1 percentage point tolerance band of the MNB, and the weakness of domestic demand.”

“However, the MNB puts a high priority on the stability of the forint-euro exchange rate, which explains the cautious approach. Thus, we expect that tight monetary policy is here to stay for the rest of the year.”

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Publish date : 2024-09-24 05:19:00

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