Hungary will probably cut the highest key interest rate in the European Union by a full percentage point as policymakers try to combat the country’s longest recession since at least 1995.
(Bloomberg) — Hungary will probably cut the highest key interest rate in the European Union by a full percentage point as policymakers try to combat the country’s longest recession since at least 1995.
The central bank will cut its overnight interest rate to 14% on Tuesday, according to all 12 analysts in a Bloomberg survey. The move will bring the instrument, which was made the key rate in October to stem a plunge in the forint, one step away from the benchmark rate.
In a separate decision, the central bank kept the benchmark rate at 13%, while lowering the top-end of the rate corridor by 100 basis points, it said in a statement. Deputy Governor Barnabas Virag will hold an online briefing at 3 p.m., when the central bank will publish its key rate decision.
Hungary’s economy has contracted for four consecutive quarters as consumers and companies struggle with the EU’s fastest inflation and highest borrowing costs, which have depressed consumption and production.
After annual inflation slowed from a peak of more than 25%, the central bank began normalizing its monetary policy in May by cutting its 18% key rate in 100-basis-point monthly steps.
After converging with the benchmark rate next month, the main interest rate levels may drop to 11% by year-end, according to the median forecast in a Bloomberg survey.
The forint gained as much as 0.5% against the euro on Tuesday before the key rate decision, boosting its year-to-date gain to 4.6% against the common currency.
(Updates with benchmark rate decision in third paragraph, forint in last.)
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