Policy adjustments have seen a reduction in borrowing costs in Hungary following a pause in August. However, it’s important to note that Hungary’s base rate remains the highest in the European Union.
The National Bank of Hungary (MNB) has officially lowered its key interest rate by 25 basis points to 6.5%. This move comes after an extended period of monetary policy adjustments where rates were held steady in August—marking the first pause after 15 consecutive months of rate cuts.
Recent trends indicate easing inflation in Hungary, which, alongside actions from other central banks, has enabled the MNB to resume its cycle of rate reductions. Interestingly, while the inflation rate remained stable on a month-to-month basis in August, it experienced a decline to 3.4% on a year-over-year basis.
The reduction in Hungary’s borrowing costs has been further facilitated by the Federal Reserve’s decision to cut its benchmark interest rate by half a point last week—the first reduction by the US central bank in over four years. Moreover, the European Central Bank also reduced its deposit facility rate by 25 basis points to 3.5% earlier this month.
Despite these adjustments, Hungary’s benchmark interest rate continues to stand as the joint highest in the EU, sharing this position with Romania. Péter Virovácz, ING’s senior economist for Hungary, emphasized to Euronews that the central bank’s methodical and stability-focused approach remains intact. He stated, “The unexpected drop in August’s inflation data, coupled with relative market stability (notably, the EUR/HUF remained in a tight trading range) and the Fed’s significant rate cut, were compelling reasons for today’s decision to ease after a brief pause.”
Photo credit & article inspired by: Euronews
