# Testing waters, Hungary’s central bank flags cut in top end of rate corridor Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2023-04-19 Category: NEWS Category URL: https://financedigest.com/category/news Meta Title: Hungary Central Bank Considers Cutting Rates Amid Inflation Meta Description: Hungary's central bank considers reducing its 25% top collateralised loan rate as part of policy normalisation amid market jolt and forint decline. URL: https://financedigest.com/testing-waters-hungarys-central-bank-flags-cut-in-top-end-of-rate-corridorhtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2023-04-19t114921z1lynxmpej3i0ddrtroptp4hungary-rates-1736814121980-compressed.jpg) # Testing waters, Hungary’s central bank flags cut in top end of rate corridor By Krisztina Than and Alan Charlish BUDAPEST (Reuters) – Hungary’s central bank could cut its 25% top collateralised loan rate next week as part of a “multi-step process” towards policy normalisation, its deputy governor said on Wednesday, jolting markets as the forint lost almost 2%. With many economists saying inflation in central Europe has peaked, Deputy Governor Barnabas Virag’s flagging of the narrowing of the interest rate corridor used by Hungarian policymakers looked to set the stage for what would be the region’s first rate cut since 2021. Policymakers tightened policy sharply starting in mid-2021 to quell [surging inflation](https://www.financedigest.com/global-growth-headed-down-as-inflation-surge-to-endure.html "Global growth headed down as inflation surge to endure"). Virag told the [business website vg.hu in an interview published on Wednesday that the latest inflation data](https://www.financedigest.com/big-data-lowers-insurance-premiums-and-optimises-business-performance.html "Big Data Lowers Insurance Premiums and Optimises Business Performance") – showing a headline rate above 25% – was in line with expectations. The [bank could return price growth to single digits](https://www.financedigest.com/the-journey-towards-a-digital-bank-five-major-stages-to-successful-banking-digitalisation.html "THE JOURNEY TOWARDS A DIGITAL BANK – FIVE MAJOR STAGES TO SUCCESSFUL BANKING DIGITALISATION") by the end of the year using “coordinated and disciplined” economic policy, he said, while it could decide on “a significant narrowing” of the upper end of its interest rate corridor at next Tuesday’s meeting. “Extreme risk scenarios have been priced out, so we no longer need to maintain such a huge room of manoeuvre,” Virag said. The National Bank of Hungary (NBH) has the European Union’s highest base [interest rate](https://www.financedigest.com/czech-interest-rates-already-at-high-level-central-bank-governor-says.html "Czech interest rates already at high level, central bank governor says"), at 13%. Last October, when the forint was plumbing new lows, it [raised its overnight collateralised loan rate](https://www.financedigest.com/bank-of-england-to-raise-rates-by-50bps-again-to-tame-inflation-reuters-poll.html "Bank of England to raise rates by 50bps again to tame inflation: Reuters Poll") to 25% from 15.5%. The rate is the top of its corridor used to guide interbank [markets toward](https://www.financedigest.com/the-clear-aligner-market-to-tilt-towards-digitization.html "The Clear Aligner Market to tilt towards digitization") the policy rate, setting limits on rate-setting. The bottom rate, used for overnight deposits, stands at 12.5%. “TRIAL BALLOON” Last October, the [bank also launched](https://www.financedigest.com/token-inc-launches-london-office-to-answer-demand-from-european-banks.html "Token, Inc. Launches London Office to Answer Demand from European Banks") a new one-day deposit with an 18% interest rate, which over the past half-year has helped lift the forint from all-time lows of around 430 to the euro. The forint traded at 378.30 to the euro on Wednesday, down 1.84% on the day. Virag said the question of the 18% [rate on the one-day deposit](https://www.financedigest.com/credit-suisse-offers-higher-deposit-rates-in-asia-to-woo-the-wealthy-sources.html "Credit Suisse offers higher deposit rates in Asia to woo the wealthy – sources") could be on the agenda only at subsequent monthly policy meetings. A cautious approach, [keeping market](https://www.financedigest.com/the-quest-to-shine-digitally-to-keep-the-pea-protein-market-on-the-toes.html "The Quest To Shine Digitally To Keep The Pea Protein Market On The Toes") stability in mind, continues to be warranted in this issue,” Virag said, referring to the 18% deposit rate. Piotr Matys, senior FX analyst at In Touch Capital Markets, said that Virag’s comments could be a way to [test how markets](https://www.financedigest.com/constructive-digitization-to-let-the-antibody-testing-market-come-of-age.html "Constructive digitization to let the Antibody Testing Market come of age") will react to lower rates. Lowering the upper end of the [interest rate](https://www.financedigest.com/interest-rate-and-recession-fears-knock-stocks-and-oil.html "Interest rate and recession fears knock stocks and oil") corridor would be a technical move — like a trial balloon,” he said. Morgan Stanley said it [expected a cut in the top 25% rate to around 18-20% next](https://www.financedigest.com/suedzucker-expects-to-raise-its-sugar-prices-again-next-year.html "Suedzucker expects to raise its sugar prices again next year") week. The [bank might ease more with cuts to the 18% one-day deposit rate](https://www.financedigest.com/ecb-raises-interest-rates-again-cuts-bank-subsidies.html "ECB raises interest rates again, cuts bank subsidies") beginning in June, it said. Hungary’s headline annual [inflation eased](https://www.financedigest.com/factbox-government-measures-to-ease-inflation-pain-2.html "Factbox-Government measures to ease inflation pain") for a second straight month in March but only marginally, while its economy slipped 0.4% quarter-on-quarter to end 2022. Prime Minister Viktor Orban’s [government has put pressure on the central bank](https://www.financedigest.com/governments-and-central-banks-risk-inflation-bank-of-england-has-done-its-bit-now-the-politicians-turn.html "Governments and central banks risk inflation, Bank of England has done its bit, now the politicians’ turn") to start lowering borrowing costs to help a recovery. Central [bank Governor Gyorgy Matolcsy and Finance Minister Mihaly Varga held talks last week about ways to wrestle down inflation and reduce borrowing costs](https://www.financedigest.com/factbox-global-banks-take-axe-to-jobs-as-cost-pressures-mount.html "Factbox-Global banks take axe to jobs as cost pressures mount"). (Reporting by Krisztina Than, additional reporting by Jason Hovet and Alan Charlish; Editing by Robert Birsel, Kim Coghill and Sharon Singleton) --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---