MNI NBH WATCH: Hungary CenBank Cuts 50Bp To 7.25% As Expected
Second successive half-point rate cut puts National Bank of Hungary on track to hit mid-year target, but caution still key.
The National Bank of Hungary cut key interest rates by 50 basis points as expected on Tuesday to leave the base rate at 7.25%, with the growth outlook and risk perceptions strengthening and the current account balance continuing to improve.
A "careful and patient" approach to monetary policy approach remains paramount the Bank said, with risks to the inflation outlook and of financial market volatility still present. (See MNI EM POLICY: NBH Set For Second 50Bp Cut, H2 Outlook Less Clear)
The NBH expects price increases to gain pace temporarily in the middle of the year due to backward-looking services pricing and base effects, with core inflation seen fluctuating between 4.5-5.0% for the rest of the year.
"Anchoring inflation expectations, preserving financial market stability and disciplined monetary policy are crucial for the consumer price index to return into the central bank tolerance band on a sustained manner from next year," the Bank said in a statement, adding that the "expected divergence between monetary policies of two of the world’s leading central banks may lead to increased volatility in emerging markets through the global interest rate environment." (See MNI EM INTERVIEW: Hungary Central Bank Faces Volatile 2025-Kiraly)
Hungary's government recently announced it has raised the expected level of this year's budget deficit from 3.7% of GDP to 4.5%. Government budget deficits "may decline" in 2024, the central bank said, noting that gross government debt fell to 73.5% of GDP by the end of 2023. (See MNI EM INTERVIEW: Hungary Needs More Growth For Fiscal Target)