HU: Reserve ratio to be reduced
- Teilen
At its todays rate-setting meeting, the Monetary Council kept the policy rate unchanged at 6.50%. The decision met both our expectation and the market consensus. The interest rate corridor did not change, either: the O/N deposit rate stands at 5.50%, while the O/N lending rate at 7.50%.
As usual, the statement of the Monetary Council on the background of the decision was be released at 3 p.m. At the same time Governor Varga unveiled the background of todays decision. Monetary Council has decided to reduce the required reserve ratio from 10 percent to 8 percent as of August 1, 2025. The measure - as the central bank statement notes - is mainly a technical change and has little impact on monetary transmission.
The forward guidance has not changed at all: The Monetary Council is committed to the achievement of the inflation target in a sustainable manner. A careful and patient approach to monetary policy remains necessary due to risks to the inflation environment as well as trade policy and geopolitical tensions. In the Councils assessment, maintaining tight monetary conditions is warranted.
The change in the reserve ratio was fundamentally adjusted the reduction of liquidity surplus in the banking system. The main messages have not changed compared to the previous meetings. Maintaining a positive real interest rate continues to be an important part of the communication. Market pricing currently indicates at least one rate cut for the remainder of the year. Our expectation is that, if developed market and regional interest rates progress according to the current forecasts, then we can still see possibility of a rate cut at the end of the year.