BUDAPEST, Oct. 24 (Xinhua) -- The Monetary Council of the National Bank of Hungary (MNB) announced a notable reduction in the base rate by 75 basis points to 12.25 percent on Tuesday, marking the first such rate cut in three years.
The central bank also reduced both ends of the interest rate corridor to the same extent. Accordingly, the lower bound of the interest corridor -- the overnight deposit interest rate -- is lowered to 11.25 percent, while the upper bound, the overnight loan interest rate, is reduced to 13.25 percent.
"Strong disinflation and a reduction in the country's vulnerability allow the MNB to continue shaping monetary conditions by lowering the base rate. At the same time, a cautious approach and a slower pace of interest rate cuts are warranted in view of the increasing external risks," the bank explained in a statement.
"With disinflation accelerating, the domestic real interest rate moved into positive territory in September and, with inflation falling dynamically, it is expected to rise gradually until the end of the year," it added.
According to the latest official figures, the inflation rate in Hungary dropped to 12.2 percent in September from its peak of 25.7 percent in January.
The bank attributed this drop to strict monetary policies, lower raw material prices, reduced consumption, and government efforts to bolster market competition. Furthermore, it anticipates a continued decline in inflation in the coming months, projecting it to fall within the range of 7-8 percent by year-end.
During a press event, the central bank's Deputy Governor Barnabas Virag said that monetary policy had entered a new phase from October, adding that the Monetary Council will make decisions step by step, in a data-driven manner, based on the inflation trajectory and risk assessment. ■