Hungarian Parliament building

Hungary Monetary Policy October 2023

Hungary: MNB cuts base rate after holding for a year

At its 24 October meeting, the Monetary Council of the Hungarian National Bank (MNB) cut its base rate to 12.25% from 13.00%, following twelve consecutive holds. Moreover, the Bank cut the overnight collateralized lending rate to 13.25% from 14.00%, while it reduced the overnight deposit rate to 11.25% from 12.00%.

The Bank’s decision to ease its policy stance was due to a further decline in inflation and subdued economic activity. The headline inflation rate decelerated to 12.2% in September from 16.4% in August, and the Bank expects it to reach 7.0-8.0% by year-end thanks to tight monetary policy, lower commodity prices compared to last year and subdued household consumption. It sees inflation moving within the Bank’s target range of 3.0% plus or minus one percentage point in 2025.

Looking ahead, the Bank stated that “a cautious approach and a slower pace of interest rate cuts are warranted” as external risks have increased. The Bank added that future monetary policy decisions would take into account “incoming macroeconomic data, the outlook for inflation and developments in the risk environment”. Real interest rates moved into positive territory in September, and they are expected to rise further by year-end as inflation declines. The next monetary policy meeting is scheduled for 21 November.

Commenting on the release, Peter Virovacz and Frantisek Taborsky, economists at ING, stated: “Looking a little further out from the short term, and thus from 2023, we expect the Central Bank to continue to lower the policy rate and the interest rate corridor as disinflation continues early next year. We wouldn’t be surprised to see the Monetary Council maintain the recent pace of easing, keeping ex-post real interest rates above 350bp, and then slowing the pace in a way that helps maintain a 200bp positive ex-post real interest rate.”

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