(Bloomberg) -- Hungary lowered the highest key interest rate in the European Union by a full percentage point as policymakers try to combat the country’s longest recession since at least 1995.
The central bank decreased its overnight interest rate to 14% on Tuesday, matching all forecasts in a Bloomberg survey. The move brought the instrument, which was made the key rate in October to stem a plunge in the forint, one step away from the benchmark rate, which was kept unchanged at 13% in a separate decision earlier.
Hungary’s economy has contracted for four consecutive quarters as consumers and companies struggle with the EU’s fastest inflation and highest borrowing costs, which have depressed consumption and production. As annual inflation slowed from a peak of more than 25%, the central bank began normalizing its monetary policy in May by cutting its 18% key rate in 100-basis-point monthly steps.
After converging with the benchmark rate next month, the main interest rate levels may drop to 11% by year-end, according to the median forecast in a Bloomberg survey. The forint gained as much as 0.5% against the euro on Tuesday before the key rate decision, boosting its year-to-date gain to 4.6% against the common currency.
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