Following Tuesday’s surprise 15 basis point cut to interest rate, another reduction may be in the cards in July.
The new deputy governor of the central bank, Barnabas Virág, said he would propose an additional 15 basis point cut in the base rate at the next meeting of the Monetary Council in July. He said after a July reduction, however, no further cuts should be made to the base rate, as a rate of 0.6% would be appropriate for supporting economic recovery while strengthening financial stability, adding that any further reductions after July could be ruled out.
On Tuesday, the National Bank of Hungary made a surprise cut to its base rate to 0.75% from 0.90%, a level it had maintained for the past four years. The move came in response to the economic fallout of the coronavirus epidemic, but the bank said it was “a one-off”.
Virág said the expectation of analysts of a cycle of interest rate cuts were exaggerated and the Hungarian central bank had a different strategy to other central banks in the region, preferring to stay well away from the near-zero range. Virág said government investments and the bank’s funding for growth schemes would aid Hungary’s economic recovery.