Hungary: Central Bank resumes rate cuts in September
Latest bank decision: At its meeting on 24 September, the Monetary Council of the Hungarian Central Bank (MNB) decided to lower the Central Bank base rate by 25 basis points to 6.50%, in line with market expectations. Concurrently, it cut the O/N deposit rate to 5.50% and the O/N collateralized lending rate to 7.50%.
Disinflation, subdued economic activity drive cut: The Bank’s decision was motivated by inflation’s return within the 2.0–4.0% target band in August, following July’s spike. The decision was also driven by the economy’s stalled recovery in Q2, particularly the need to reinvigorate domestic demand. Additionally, the Bank noted that corporate credit demand remained sluggish, as the private sector opted for a wait-and-see approach to borrowing. Lastly, rate cuts by the ECB and U.S. Fed gave the Hungarian authorities further room to cut rates.
Further rate cuts ahead: At a subsequent press briefing, Deputy Governor Barnabas Virag stated that the Bank would consider either holding rates steady or cutting them by 25 basis points at each monthly meeting by year-end. The majority of our panelists expect an additional 25–75 basis point cut in the remainder of 2024, with over 150 basis points of further rate reductions penciled in for 2025. A weaker-than-expected forint, a potential spike in inflation and looser-than-anticipated fiscal spending pose upside risks to the policy rate.
The Bank will convene again on 22 October.
Panelist insight: ING analysts Peter Virovacz and Frantisek Taborsky commented on the outlook:
“We see the year-end rate at 6.25%, so an unchanged call from our side. In the very short run and having a way too early call on that, but we see October as an on-hold meeting. The ECB is unlikely to deliver a cut in October, while the Fed meets only in early November. With the [National Bank of Hungary] meeting being exactly two weeks before the US election, there might be a minefield out there from an investor sentiment and market stability perspective. Moreover, our short-term inflation forecast suggests a looming upside surprise versus the central bank’s inflation path.”