The NBH, which has faced strong government pressure to cut rates faster to help the economy, held off on larger cuts last month amid a rise in market risks after its mid-January guidance that a sharp fall in inflation could help accelerate easing.
Hungary's headline inflation fell to an annual 3.8% in January from the European Union's highest levels of over 25% a year ago, while an economic recovery that started in the third quarter stalled in the last three months of 2023.
Deputy Governor Barnabas Virag told news website index.hu on Thursday that options for a 75-bp and 100-bp rate cut would both be on the table next week.
The median forecast of a Feb. 19-23 Reuters survey projects a 100-bp cut to 9%, although seven out of 17 economists have pencilled in just a 75-bp reduction.
"We continue to expect the NBH to lower its key policy rate by 100 bps to 9% but also still see significant risks for the central bank to err on the side of caution and maintain a steady 75-bp pace," Morgan Stanley economists said in a note.
"We expect the base rate to reach 6.25% in June, when we think that the NBH is likely to take a pause for the rest of the year."
A 100-bp cut next week would mean the NBH will have halved its main rate from 18% in an easing cycle launched last May, aided by a retreat in price growth and the recovery of the forint from record lows hit in October 2022.
But with annual inflation seen rebounding to 5.4% by the end of the year, the scope for further aggressive cuts is narrowing.
Economists polled by Reuters see Hungary's base rate at 6% at the end of 2024, suggesting next to no room for rate cuts in the second half if the NBH manages to deliver on its guidance to cut its base rate to 6-7% by the middle of the year.
Deeper cuts amid a projected rebound in inflation could upend the bank's strategy of keeping interest rates above the level of price growth.
(Reporting by Gergely Szakacs; Editing by Nick Macfie)
By Gergely Szakacs
