MNI WATCH: NBH Slows To 50BP, Cites Sentiment, Sticky Core
Hungarian National Bank lowers base rate half a point to 7.75%, with temporary inflation pick-up seen later this year.
The Hungarian National Bank cut key interest rates by 50 basis points on Thursday, with deterioration in market sentiment since March outweighing the positive contribution to the country’s risk perception made by slowing inflation and improvements in the current account balance.
The HNB cut the base rate from 8.25% to 7.75% as data showed headline inflation fell to 3.6% in March, with “strong and general” disinflation across the Hungarian economy, and both external and domestic demand pressures remaining low.
But, the Bank said in a statement, risks surrounding global disinflation, volatility in international investor sentiment and the sustainable continuation of domestic disinflation warrant a careful approach, with a slower pace of rate reductions than seen earlier in the year. (See MNI POLICY: NBH Set To Confirm Markets' 50BP Cut Expectation)
Growth “may pick up in the second half of the year,” the bank said, with GDP still expected to increase by 2.0-3.0% in 2024, and the outlook for 2025 still “balanced.”
Inflation is expected to rise temporarily in the middle of the year due to the backward-looking pricing of market services and base effects, with core inflation becoming sticky at between 4.5% and 5.0% for the rest of this year.
April’s monetary policy decision came one week after the government in Budapest revised its annual expected budget deficit up from 2.9% of GDP to 4.5%, and announced a fiscal savings package worth some USD1.8 billion,
Government deficits “may” decline in 2024, the MNB said, with the primary balance is seen at “near equilibrium” levels in five years’ time.
However, deficit targets will need to be set in a “credible manner” if Hungary’s risk perception is to improve and the debt ratio to decline continuously in 2024, the statement added.