Hungary’s central bank cut the overnight rate by a percentage point to 15% on Tuesday as it continues with plans to ease its emergency monetary regime, matching forecasts by economists polled by Bloomberg.
Policymakers also held the benchmark rate, which took on a secondary role in 2022, at 13%.
The central bank made the decision to cut the highest key borrowing costs in the European Union to alleviate pressure on the country’s economy following three-quarters of the recession.
“The character of Hungary’s monetary policy won’t change after September,” said central bank deputy governor Barnabas Virag during a news conference after the decision.
The rate easing cycle, which got underway in May, continued when the bank initially slashed the peak rate from 18% to align the key and benchmark rates. Should the rate cuts continue as predicted, it will, in effect, bring an end to the emergency rate regime introduced in October last year to stop a selloff of the Forint, Bloomberg reports.
The central bank’s deputy governor said policymakers are planning to remain with a “gradual, cautious, and predictable” rate-cut trajectory. In addition, he ruled out sharper rate cuts, even if disinflation gathers momentum.
The third consecutive reduction will help ease pressure on households and businesses, which have reduced spending and heightened the economic downturn.
In terms of the central bank, this outweighs the risk that rate cuts could halt the inflation slowdown, which fell to 20.1% in June from over 25% back in January.
In addition, the Hungarian Forint made gains against the Euro after the central bank’s rate decision was announced.
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