Hungarian Parliament building

Hungary Monetary Policy December 2023

Hungary: MNB cuts rates again in December

At its 19 December meeting, the Monetary Council of the Hungarian National Bank (MNB) cut its base rate to 10.75% from 11.50%. Moreover, the Bank lowered the overnight collateralized lending rate to 11.75% from 12.50%, while it reduced the overnight deposit rate to 9.75% from 10.50%.

The Bank’s decision to continue easing its policy stance was due to a further decline in inflation. The headline rate decelerated to 7.9% in November from 9.9% in October, and the Bank expects it to reach around 6.0% by end-2023 thanks to still-tight monetary policy, lower commodity prices compared to last year and subdued domestic demand. It sees inflation averaging between 4.0–5.5% in 2024 and 2.5–3.5% in 2025–2026.

Looking ahead, the Bank stated that “a careful approach to monetary policy” is warranted due to risks stemming from international geopolitical tensions and domestic labor market tightness. 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”. Our panelists expect the Bank to cut rates further by over 400 basis points in 2024 due to easing inflation. The next monetary policy meeting is scheduled for 30 January.

Commenting on the future course of Hungary’s monetary policy, ING’s Peter Virovacz and Dávid Szonyi stated:

“Overall, while the actual outcome of the December rate-setting meeting was in line with expectations and provided a smooth end to a difficult 2023, it also brought a new, dovish spark. If market stability is maintained, domestic macroeconomic indicators continue to improve and risk sentiment also improves, we see the next meeting as being live, with policymakers deciding between a 75 basis-points or 100 basis-points rate cut.”

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