Hungary’s central bank cut interest rates by 25 basis points as expected, lowering the rate to 5.75%. With inflation remaining consistently below the target range, the move paves the way for further monetary easing, but geopolitical risks and a weakening forint limit the room for additional cuts.

⑴ The National Bank of Hungary lowered its benchmark interest rate by 25 basis points to 5.75% on Tuesday, in line with market expectations, continuing its previous easing cycle. June inflation further fell to 1.7% from 1.8% in May, remaining below the central bank’s 2%-4% target range for the second consecutive month, which provides room for further monetary policy easing. ⑵ The central bank governor stated that another rate cut may be implemented during the summer, after which the central bank will conduct a comprehensive assessment of its policy path in September based on the latest macroeconomic forecasts, suggesting that the pace of easing may become more cautious after the third quarter. ⑶ Since the last meeting, the forint has depreciated by nearly 2% against the euro, mainly due to renewed tensions in the Middle East. Rising energy import costs may be transmitted to domestic prices through the exchange rate channel, posing an upside risk to inflation and potentially constraining the scope and pace of future rate cuts.