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Central Bank to Possibly Cut Base Rate Once again in July

Péter Cseresnyés 2020.06.26.

The National Bank of Hungary (MNB) may cut its base rate by another 15 basis points in July, but that is the furthest it will go, Deputy Governor Barnabás Virág said on Friday, adding that analyst expectations of further rate easing were exaggerated.

The new deputy governor of the central bank, Barnabás Virág, told public radio Kossuth that he would propose an additional 0.15 basis point cut in the base rate at the next meeting of the monetary council in July.

After the July reduction, however, no further cuts should be made to the base rate, as a rate of 0.6% would be appropriate to support economic recovery and strengthen financial stability. Any further reductions after July could be ruled out.

Out of the Blue, National Bank Reduces Base Rate after 4 Years

Analysts’ expectations of a cycle of interest rate cuts were exaggerated, Virág said, adding that the Hungarian central bank had a different strategy than other central banks in the region, preferring not to reach a near-zero range.

Virag said government investments and the bank’s funding for growth schemes would aid Hungary’s economic recovery.

For the first time in four years, Hungary’s central bank unexpectedly reduced its base rate by 15 basis points to 0.75% on Tuesday.

The decision was due to the greater-than-expected damage to the economy from the coronavirus pandemic. According to its latest Inflation Report, the central bank is still expecting a surge in the economy, but only a 0.3-2.0% GDP growth compared to the previously predicted 2-3%.

After the initial stable exchange rate reaction to the announcement of the Deputy Governor, the forint started weakening again on Friday morning, with the quotes against the euro rising from 354.4 to 355.

Featured photo by Tibor Illyés/MTI