MNI POLICY: NBH To Cut 25 Basis Points
MNI (LONDON) - The National Bank of Hungary will cut interest rates by 25 basis points to 6.25% on Tuesday in line with market expectations, MNI understands, with the decision supported by a continued gradual decline in inflation, exchange rate stability and a weak external environment.
The decision to lower the base rate in September will come after the NBH paused in August, holding the base rate at 6.5%. In June it said upcoming discussions within the Monetary Council would be between no change and quarter-point reductions. (See MNI NBH WATCH: Rates Held As Outlook For 2024 Cuts Weakens)
The NBH is likely to consider August’s surprise fall in CPI inflation to 3.4% as a one-off, with food pricing dynamics returning to trend after a strong reading in July attributable to the withdrawal of government support measures. Officials will regard a 25bp cut as a cautious move consistent with both sustainably reaching its inflation target and with financial market and exchange rate stability.
Some items are expected to undergo a pickup in inflation, with other government measures potentially influencing prices, but their effect is not expected to be significant, especially as oil and gas prices continue to decline, and September’s inflation should be in line with previous MNB projections. (See MNI INTERVIEW2 Hungary Keeps Deficit Plans, Minister Nagy Says)
Recent easing by the European Central Bank and the Federal Reserve has given the Bank slightly more room for manoeuvre, though it is at a different stage in the easing cycle having steadily lowered rates since their 13.00% peak in September 2022.
Deputy Governor Barnabas Virag stated following August’s decision that reducing inflation expectations further and preserving financial market stability “remain key to achieving price stability again and restoring the sustainable growth path of the domestic economy.”