Published: December 19 2023
The Hungarian National Bank has decided to keep the interest rate above 10 percent for the New Year's Eve, despite the rapid decrease in inflation. This decision is in line with the bank's previous cuts in the base interest rate over the past few months.
Impact on Bank Deposits and Loans
The decision to lower the base interest rate will affect bank deposits and loans. Some banks offer deposits with interest rates aligned with the base rate, but this option may become less attractive due to the rate cuts. Additionally, interbank rates, such as BUBOR and BIRS, are likely to decrease, impacting variable interest loans and mortgages. However, the rate cuts may not automatically be reflected in the pricing of new bank loans, but will influence the reference rates used for pricing.
Inflation and Economic Projections
The central bank expects inflation to decrease to around 6 percent by December, and it may even start with a five. The strong disinflation is expected to continue into the first quarter of 2024 and then slow down. The consumer price index is projected to permanently return to the bank's inflation target in 2025. The central bank predicts an average inflation rate of 17.6-17.7 percent for this year, 4.0-5.5 percent for 2024, and 2.5-3.5 percent for both 2025 and 2026. The government's budget for 2024 assumed an average annual inflation rate of 6 percent, although recent statements suggest it may be lower.
Future Monetary Policy and Economic Outlook
The central bank foresees a possible real wage increase of around 5 percent in 2024 and projects a decline of the domestic economy by 0.6-0.4 percent in 2023. In 2024, the Hungarian GDP is expected to grow by 2.5-3.5 percent, followed by 3.5-4.5 percent in 2025, and 3.0-4.0 percent in 2026.
Overall, the central bank's decision to maintain the high interest rates reflects its cautious approach towards inflation and monetary policy in Hungary. The ongoing disinflation and projected economic growth will shape the country's economic landscape in the coming years.
Questions & Answers
What is the current interest rate in Hungary? The Hungarian Central Bank has decided to keep the interest rate above 10 percent for New Year's Eve, specifically at a level of 10.75 percent.
Has the interest rate in Hungary been decreasing over time? Yes, the interest rate has been decreasing over time. Since May, the Hungarian National Bank has been gradually reducing the interest rate, lowering it by 0.75 percent each month.
When is Hungary expected to have a single-digit interest rate? If the Hungarian National Bank continues to decrease the interest rate at the current pace, Hungary could have a single-digit interest rate as early as February, potentially reaching a level below 10 percent, specifically 9.25 percent.
How does the decrease in interest rate impact mortgage loans in Hungary? The decrease in interest rate affects mortgage loans in Hungary. In October, a cap on mortgage interest rates was introduced, and starting from January, it will be reduced from 8.5 percent to 7.3 percent. This reduction is justified by the recent decrease in the interest rate and the corresponding decrease in reference rates influencing long-term mortgage loan pricing.
When will the cap on business revolving credit facilities be maintained until in Hungary? The cap on business revolving credit facilities will be maintained until April 1st, according to the government's plans.
Does the decrease in the interest rate impact bank deposits and loans in Hungary? Yes, the decrease in the interest rate in Hungary impacts bank deposits and loans. Certain bank deposits are adjusted to the interest rate, and the interbank rates, such as BUBOR and BIRS, typically decrease after such decisions. These rates have an impact on variable interest rate loans and longer-term loans, such as mortgages. For existing loans, the interest rate change can potentially affect the installment payments at the time of interest rate reset.
What inflation level does the Hungarian National Bank expect for 2024? The Hungarian National Bank expects an annual inflation rate of around 6 percent by December and potentially starting from 5 percent. The inflation rate is projected to continue decreasing strongly in the first quarter of 2024 and then slow down. The consumer price index is expected to return to the central bank's inflation target in 2025.
What does the Hungarian National Bank forecast for annual inflation rates in the coming years? The Hungarian National Bank's forecast for annual inflation rates is as follows: around 17.6-17.7 percent for this year, 4.0-5.5 percent for 2024, and between 2.5-3.5 percent for both 2025 and 2026.
What is the projected performance of the Hungarian economy for the coming years? The Hungarian National Bank projects a slight decline in the performance of the Hungarian economy by 0.6-0.4 percent in 2023. However, it is expected to grow by 2.5-3.5 percent in 2024, 3.5-4.5 percent in 2025, and 3.0-4.0 percent in 2026.