(Bloomberg) -- Hungary’s central bank extended its more than yearlong easing cycle after inflation came in lower than expected last month and the forint touched a six-week high against the euro.
The National Bank of Hungary cut the benchmark rate by a quarter of a percentage point to 6.75% on Tuesday, matching the median estimate of 25 economists surveyed by Bloomberg. That’s tied for the highest key rate in the European Union, matching Romania’s.
Bets for one or two more cuts this year are “realistic,” Deputy Governor Barnabas Virag said in an online briefing following the decision. He reiterated that a “careful and patient” approach was warranted.
The decision on Tuesday was taken unanimously, Virag said, adding that each further meeting will consider two options: a 25 basis-point cut and no change.
Policymakers have progressively reduced the size of the cuts this year from a full percentage point to a quarter point last month. The central bank’s key rate peaked at 18% and has since been cut sharply as price-growth slowed to within the central bank’s tolerance band in June.
The forint slid 0.5% against the euro by 3:39 p.m. in Budapest, paring its appreciation in the past month to 1.3%, still the second-best performer among 23 emerging-market currencies, behind the Colombian peso. Forward-rate agreements are pricing in slightly more easing than policymakers’ call for about 75 basis points in base rate cuts by the end of the year, including Tuesday’s move.
Risks remain though, with the central bank warning that core inflation would rise to as high as 5% by the end of the year. Tax hikes aimed at plugging budget holes as well as potentially higher prices at the pump due to a disruption in Russian crude oil flows may also fuel price increases and limit the room for rate cuts.
Headline inflation, which slowed to an annual 3.7% in June, may hover around 4% in the rest of the year, Virag said. That’s the top end of the central bank’s 1 percentage point tolerance band around their 3% medium term target.
--With assistance from Mark Sweetman.
(Updates with deputy governor’s comment in third and last paragraph.)
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