MTI reports that the Monetary Council of the Hungarian National Bank lowered the base rate by 50 basis points to 7.75 percent at its interest rate decision meeting on Tuesday.
In February, the forint reacted very sensitively to the accelerated 100-basis-point interest rate cut at the time: it began to weaken against the euro and the dollar, and by March it was approaching the level of four hundred euros. Although there is a direct connection between the forint exchange rate and interest rate decisions, the MNB claims that it does not care about this because it has an inflation target, not an exchange rate target.
Despite this, the MNB also recently reduced the interest rate by only 75 basis points, and now they have slowed the pace even further by 50 basis points. Anyway, the price of the euro is not too far from the 400 level: it opened the day around HUF 394, which overall corresponds to the average of the past few days. The price of the dollar hovered around HUF 370 on Tuesday morning.
Raising or lowering the interest rate is the MNB’s most important tool to influence the economy. This is how the MNB can best influence the money supply in the economy, so inflation can be reduced by raising the interest rate. That is why the central bank raised the interest rate quickly in 2021 and 2022 during the period of high inflation, and that is why it is now possible to cut the interest rate by reducing inflation. The change in the base interest rate is also followed by retail loan interest and deposit interest with every delay.
