The Hungarian central bank has cut its base interest rate by 25 basis points, bringing it to 6 percent. The decision follows May inflation data showing the annual rate dropped to 1.8 percent, while wage pressures in the economy have also eased.
The Magyar Nemzeti Bank announced the move on Tuesday, the second reduction this year after a similar cut in February lowered the rate from 6.5 to 6.25 percent. Analysts had widely expected the step after the latest inflation figures were released.
In a statement, the central bank said the decision was made amid observed, gradual easing of inflationary pressures and favourable external conditions supporting the normalisation of monetary policy.
Rate cut driven by easing inflation and wage pressure
The reduction reflects a cautiously optimistic outlook on price growth. May’s inflation of 1.8 percent is well below the central bank’s target, giving policymakers room to loosen the monetary stance. At the same time, wage dynamics have moderated, reducing one of the key domestic cost drivers.
Financial market analysts noted the gradual, controlled approach to rate cuts, which was further supported by the assessment from S&P Global Ratings. At the end of May, the agency affirmed Hungary’s long-term and short-term sovereign credit ratings at 'BBB-/A-3′ in both foreign and local currency, albeit with a negative outlook.
Fiscal challenges remain despite monetary easing
Despite the positive inflation trend, the economy faces structural headwinds. The largest problems remain a high budget deficit, foreign currency debt and rising debt servicing costs. Consumption has weakened, which will weigh on GDP growth, estimated at between 1.7 and 1.8 percent for the year.
The central bank’s cautious approach signals that while price pressures are receding, broader fiscal imbalances limit the scope for aggressive easing. The negative outlook from S&P underscores concerns about the sustainability of public finances.
Hungary’s previous rate cut in February brought the base rate down from 6.5 percent to 6.25 percent. The latest reduction continues the path of gradual monetary normalisation as the central bank balances inflation control with supporting a sluggish economy.
Źródło: WNP.PL, Fot. TTstudio / Shutterstock
