Mihály Varga, Governor of the Hungarian Central Bank (MNB)
At their meeting on July 21, the members of the Monetary Council of the Hungarian Central Bank (MNB) voted unanimously to lower the key interest rate.
The Council lowered the central bank’s key interest rate by 25 basis points to 5.75 percent, with both limits of the interest rate corridor also being reduced by 25 basis points each.
The policymakers agreed that, should favorable developments continue, there was room for further cuts to the key interest rate over the course of the summer while ensuring positive real interest rates; the Council will decide on the continuation of this policy in September based on the inflation report.
The Council noted that the lower risk premium for domestic assets persists.
Policy makers emphasized that, although the forint had depreciated in tandem with the rise in energy prices, domestic financial markets remained relatively stable.
With regard to inflation trends and the inflation outlook, Council members noted that these had developed more favorably than projected in June. Based on the documents, some policymakers pointed out that the pace of price increases remained below the lower bound of the tolerance range, while others emphasized that inflation was below the central bank’s June forecast. Several members highlighted that public inflation expectations have moderated since the beginning of the year.
There was consensus within the Council that the inflation outlook and the persistently low risk premium for domestic investments have preserved the scope for monetary policy action. In addition, some Council members pointed out that the domestic real interest rate remains relatively high compared with those in other emerging markets. Against this backdrop, policymakers saw an opportunity to continue the series of three interest rate cuts announced in June. Several Council members emphasized that this step was consistent with the foreseeable monetary policy course.
In its July interest rate decision, the Monetary Council discussed a single proposed resolution: to lower the key interest rate by 25 basis points to 5.75 percent.
According to the minutes, Council members continuously assess the inflation outlook, global developments, and trends in the domestic risk premium.
Via MTI; Featured photo: MTI/Kovács Márton