The central bank of Hungary is expected to press ahead with monetary easing in 2024 due to the sharp drop in inflation last month.

According to Euronews, Hungary's central bank, Magyar Nemzeti Bank (MNB), lowered its key interest rate by 75 basis points to 10.75% on Tuesday, marking the third consecutive cut since October. The one-day deposit rate will reportedly decrease to 9.75%, while the one-day loan rate will drop to 11.75% beginning tomorrow.

(Photo : ATTILA KISBENEDEK/AFP via Getty Images)
Thousands of large, old Hungarian banknotes are processed at a logistics center at the Central Bank of Hungary in Budapest on February 9, 2012.

Declining Inflation in Hungary

The benchmark interest rate, which was 18% at the start of 2023, dropped significantly throughout the year because of a sharp decrease in inflation attributed to lower energy prices and slow consumption.  

According to the Monetary Council's statement, Hungary's economic fundamentals have shown improvement despite challenges. The recession ended in the third quarter of 2023, with a 0.9% rise in GDP compared to the previous quarter. 

While economic performance has been impacted by high inflation, improvements in the labor market, including a low unemployment rate, have been notable. The gradual economic recovery is expected to continue into the fourth quarter of 2023.

Despite challenges such as high inflation affecting household consumption and cautious investment due to uncertainties, net exports have positively contributed to economic growth.

In terms of inflation, the MNB reported a widespread and general decline in domestic inflation. In November, consumer prices jumped by 7.9% year-on-year, with core inflation at 9.1%.  

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Economy of Hungary Is Expected to Rebounds

As inflation moderates, MNB expects wages and domestic demand to rise, leading to stronger economic growth in 2024. The central bank noted that strong disinflation is seen to continue in the first quarter of 2024 before slowing down.

In its outlook, the MNB predicts the GDP to expand by 2.5-3.5% in 2024, 3.5-4.5% in 2025, and 3-4% in 2026. According to the Monetary Council, Hungary's economy is clearly on a path of disinflation, while risk perceptions have improved further, allowing the base rate to continue to be lowered.

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