BUDAPEST (Reuters) – Hungary’s inflation will slow to single digit by end-2023 from 24% in April, allowing the central bank to sharply cut interest rates by next spring, Minister for Economic Development Marton Nagy said in an interview on Tuesday.
Nagy told business website vg.hu that caps on households’ mortgage rates and small businesses’ loan rates can be phased out only when the central bank’s benchmark rate falls to single digits. He said the 2024 budget was tight due to surging debt service costs.
“Reaching single-digit inflation by the end of the year could mean that central bank interest rates could also be single-digit by the spring of 2024,” Nagy said.
“The really difficult task will be to reduce inflation below 5% as it will not be easy to curb inflation expectations and there are other factors as well that make the job difficult.”
Hungary, which has the EU’s highest inflation, will release May inflation data on Thursday.
Last month, the National Bank of Hungary cut its key one-day deposit rate by 100 basis points to 17% and flagged further possible “gradual” cuts as inflation slows, delivering the start of the first such policy easing cycle in Europe.
The central bank has previously faced pressure from Prime Minister Viktor Orban’s government to cut the cost of credit because of the adverse impact it is having on the economy which is stagnating this year.
Last month, a Reuters survey median projected the NBH to proceed with 100 bps of cuts over the coming months, aligning its 17% one-day rate with its 13% base rate by the autumn. The central bank will publish fresh inflation forecasts on June 20.
(Reporting by Krisztina Than; Editing by Jacqueline Wong)
