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The council also lowered the central bank’s symmetric interest rate corridor by 25 bp. The overnight deposit rate was reduced to 4.75%, while the overnight collateralized loan rate was cut to 6.75%.
In a statement released after the meeting, rate-setters said inflation developments had been more favorable than the baseline scenario in the central bank’s June Inflation Report. They added that lower risk premiums on domestic assets had persisted, preserving the council’s room for maneuver.
Looking ahead, the council said Hungary’s risk assessment would be influenced by expectations regarding the fiscal path and euro adoption, as well as developments in the conflict in the Middle East.
“If favorable developments persist, the Council – while maintaining a positive real interest rate – sees room to further decrease the base rate throughout the summer, with a decision on the continuation to be made based on the September Inflation Report,” policymakers said.
The council affirmed its commitment to achieving the inflation target in a sustainable manner and said rate-setters continuously assess the inflation outlook, global developments and Hungary’s risk premium.
“Maintaining the stability of domestic financial markets, especially that of the foreign exchange market, anchors inflation expectations and thus contributes to achieving price stability,” the council said.
At a press conference after the meeting, MNB Governor Mihály Varga said the council had taken a unanimous decision on the rate cut. He added that no other options had been discussed.
Equilor said the decision did not come as a surprise, noting that the 25 bp cut had been in line with preliminary expectations.
The brokerage said the central bank’s communication had not changed significantly. It noted that policymakers again pointed to more favorable inflation developments than projected in June and to the persistence of lower risk premiums on domestic assets, which together maintained monetary policy room for maneuver.
Equilor said the statement again underlined that the domestic risk assessment will be shaped by expectations regarding the budget path and euro adoption, as well as developments in the Middle East conflict.
According to Equilor, another rate cut could come during the summer if favorable trends persist. It noted that the council sees room for a further reduction in the base rate while maintaining a positive real interest rate, with a decision on continuation to be made on the basis of the September Inflation Report.
The minutes of Tuesday’s meeting will be published at 2 p.m. on Aug. 5.
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