Hungary’s central bank lowered its base rate by a quarter point on Tuesday from 7.25% to 7%.  

This follows on from half-point reductions in April and May and is the most recent in a series of rate cuts that got underway in May 2023.

Before the National Bank of Hungary started cutting borrowing costs, the country’s key interest rate hit a peak of 18%, the highest level in the European Union over this period.

Experts attribute the cautious approach to easing to a decline in the Forint and creeping inflation. 

The Hungarian currency has depreciated by 2.5% against the Euro in the past month, reflecting market concerns about unstable economic conditions, Euro News reports.

The depreciation of the Forint is partly attributed to a conflict between Hungary's central bank and Prime Minister Viktor Orban, who has been urging the monetary policy committee to accelerate rate cuts.

The country’s economy minister Marton Nagy has strongly criticised the National Bank of Hungary for maintaining high borrowing costs to combat inflation, which he argues is hampering economic growth.

Back in March, the central bank openly confronted the government over policies it perceived as detrimental to its independence. These policies included imposing caps on prices and interest rates.

Meanwhile, Hungary’s inflation has edged up in April and May, despite a consistent decline observed over the past year.

Furthermore, annual inflation reached 4% last month, up from 3.7% in April and higher than the more than three-year low of 3.6% recorded in March. Hungary's medium-term inflation target is 3%. 

Regarding future rate cuts, deputy governor Barnabas Virag stated last month that there is “very, very limited” room left for further easing.