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Financial News: Hungary Central Bank Slashes Key Rate By 50

Hungary Central Bank Slashes Key Rate By 50 Bps To 7.25%

05/21/2024 - 11:00:00 (RTTNews)

(RTTNews) - Hungary's central bank cut the benchmark interest rate further on Tuesday in order to boost the economy amid strong disinflation trends from the start of the year.

The Monetary Council of the Magyar Nemzeti Bank decided to cut the base rate by 50 basis points to 7.25 percent, in line with economists' expectations.

The rate was lowered for the eighth straight meeting, and the previous rate change was a 50 basis point reduction in the April meeting.

The rates on collateralized loan rates and overnight deposits were also cut by 50 basis points to 8.25 percent and 6.25 percent, respectively.

Recent official data showed that the country's domestic consumer price inflation rose slightly to 3.7 percent in April from 3.6 percent in March. Nonetheless, inflation has been within the bank's tolerance range since the beginning of the year. 

Annual core inflation declined further to a 31-month low of 4.1 percent. Inflation was in line with the projection in the March Inflation Report. 

The Hungarian economy grew 1.1 percent annually in the first quarter of this year and advanced 0.8 percent from the previous quarter.

Economic growth is likely to accelerate further in the second half of the year, mainly supported by domestic demand components. The bank predicts the economy will grow by 2.0-3.0 percent in 2024.

The Council is constantly assessing incoming macroeconomic data, the outlook for inflation, and developments in the risk environment and will take decisions on any further reductions in the base rate in a cautious and data-driven manner, the bank said in a statement.

The latest rate cut is likely to be followed by more cautious monetary easing over the rest of this year, Capital Economics economist Nicholas Farr said.

"We think that inflation will rise to 4.8 percent y/y by the end of this year, and that GDP growth over 2024 may be a bit stronger than our previous 2.0 percent forecast," Farr said.

"For now, we are maintaining our view that the base rate will end 2024 at 6.25%, but the risks seem tilted to the upside."

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