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Hungary’s central bank (MNB) has reduced its key interest rate by 75 basis points to 10.75%.

The announcement on Tuesday following the MNB Monetary Council’s last meeting of the year, marked the third consecutive cut since October. The one-day deposit rate will drop to 9.75%, while the one-day loan rate will decrease to 11.75% starting tomorrow.

The benchmark interest rate started the year at 18%, and fell significantly throughout the year due to a sharp drop in inflation, fuelled by lower energy prices and sluggish consumption. This is expected to continue at the beginning of 2024.

The MNB also released its updated economic forecast, signalling a strong decline in the forthcoming inflation report. In November, consumer prices rose by 7.9% year-on-year, and core inflation stood at 9.1%. 

The consumer price index is expected to return to the central bank’s inflation target of between 4% and 5.5% in 2025.

Hungary’s economy is expected to rebound

In a yearly comparison, it contracted in the first three quarters of the year, but for the last three months of 2023, the MNB is expecting annual GDP growth, said the bank’s Vice President Barnabás Virág at a press briefing after the Monetary Council’s decision. 

The MNB expects the GDP to expand by 2.5–3.5% in 2024, followed by 3.5–4.5% in 2025 and by 3–4% in 2026. 

Virág said at the press briefing that the Council has also discussed the possibility of a 100 basis point rate cut today.  

Earlier in November, the vice president signalled that the interest rate may fall below 10% for the first time in February 2024, which has been widely interpreted that the rate of 75 basis points per month is almost certain to stay until then.