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Interest Rate Outlook: Limited Scope for Cuts Ahead

MTI-Hungary Today 2024.05.22.

In an online discussion following recent monetary policy decisions, Barnabás Virág, Vice-chairman of the Hungarian National Bank (MNB), offered insights into the country’s economic outlook.

While indicating the potential for further interest rate cuts in June, aiming to bring the base rate within the 6.75-7.00 percent range, Mr. Virág cautioned against excessive optimism regarding additional cuts later in the year. The recent reduction by 50 basis points to 7.25 percent aligns with the central bank’s ongoing efforts to stimulate economic activity amid persistent challenges.

The Vice-chairman highlighted the importance of addressing backward-looking pricing practices in the services sector, which continue to impede efforts to achieve sustainable growth.

He stressed the need for structural reforms to enhance market efficiency and foster long-term economic resilience.

Despite concerted global efforts to maintain low inflation, the Vice-chairman acknowledged the likelihood of temporary inflationary pressures in the coming months, particularly driven by heightened services inflation. This, coupled with geopolitical tensions and the divergent monetary policies of major central banks, adds layers of complexity to Hungary’s economic landscape.

On a positive note, Hungary’s domestic economy continues to exhibit resilience, with anticipated growth momentum extending into the second quarter. Barnabás Virág pointed to rising real wages and robust export performance as key drivers of economic expansion. Moreover, he highlighted the remarkable March current account surplus, surpassing initial projections and underlining Hungary’s solid external position.

Statistical Office Reports Huge Growth in Real Wages
Statistical Office Reports Huge Growth in Real Wages

In 2023, average gross earnings stood at HUF 571,200.Continue reading

In light of prevailing uncertainties, Mr. Virág emphasized the MNB’s unwavering commitment to financial stability.

He underscored the importance of vigilant risk monitoring and prudent policy measures to mitigate potential threats to Hungary’s economic well-being.

In conclusion, Vice-chairman Virág called for a balanced approach to monetary policy, characterized by caution and patience. While Hungary navigates through turbulent global conditions, maintaining a steady course anchored in sound economic fundamentals remains paramount to ensuring sustained growth and prosperity.

Monetary Council Reduces Central Bank Base Rate by 50 Points
Monetary Council Reduces Central Bank Base Rate by 50 Points

The Monetary Council reduced the national bank's base rate by 50 basis points to 7.75 percentContinue reading

Via MTI; Featured Image: Wikipedia


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