Hungary's central bank cut its benchmark interest rate by a quarter percentage point to 5.5% on Tuesday, continuing its easing cycle. This move was widely anticipated by economists, with all 22 surveyed by Bloomberg expecting the reduction. The decision comes as inflation in Hungary has reached a decade low, providing the central bank with room for further monetary policy adjustments.
Governor Mihaly Varga stated that the central bank sees potential for additional rate cuts next month before undertaking a comprehensive review of its easing cycle in September. This indicates a cautious but consistent approach to monetary policy, balancing inflation control with economic growth. The forint, Hungary's currency, weakened slightly against the euro following the announcement, trading at 398.63 per euro at 3:15 p.m. in Budapest.
The central bank has been gradually reducing its key rate since February 2026, when it cut rates for the first time in nearly 18 months, lowering the rate to 6.25% from 6.5%. Subsequent cuts brought the rate to 6% in June and 5.75% in July. The consistent easing reflects the bank's assessment of declining inflation and a stable financial environment, despite some internal debate within the Monetary Council regarding the pace of cuts.
Favorable inflation developments, which have been better than initially projected in June, along with a persistent lower risk premium on domestic assets, have provided the Monetary Council with flexibility. The council remains committed to achieving its 3% inflation target sustainably. They will continue to monitor both international and domestic factors influencing the inflation outlook, including expectations regarding the fiscal path, euro adoption, and developments in the Middle East conflict.
