MNI POLICY: NBH Set For Second 50Bp Cut, H2 Outlook Less Clear

The National Bank of Hungary is likely to lower the base rate by 50bps to 7.25% on Tuesday, MNI understands, with the decision to maintain the pace of cuts established last month seen as straightforward given favourable domestic and financial market developments, but greater uncertainty approaching in the second half of the year.

The 0.1% increase in the pace of price rises since last month’s policy decision still leaves inflation within the Bank’s tolerance band at 3.7%, with real interest rates at significant levels and recent forint appreciation helping to keep upward price pressures in check. Hungary’s current account balance showed a record improvement in 2023, and growth has started to pick up, with household consumption predicted to expand further over the course of H2.

Having signalled in March the shift to a lower 50bp pace of rate cuts delivered in April , the outlook for the second half of this year is less certain, once the base rate reaches 6.5%-7% in June. Inflation is expected to rise to 4% or 5%, and while there is greater clarity over Federal Reserve and European Central Bank moves in the near-term, after June the picture becomes less clear. (See MNI EM INTERVIEW: Hungary Central Bank Faces Volatile 2025-Kiraly)

Geopolitical risks remain a concern. The NBH’s emphasis will be on following incoming data and moving cautiously in order to meet its inflation target by 2025 while maintaining financial market stability. (See MNI NBH Review - April 2024: Caution Still the Mantra)