A 100-Basis Point Rate Cut in Hungary
July 27, 2009
Magyar Nemzeti Bank implemented a rate cut as expected for the first time since January 19th, but its magnitude was twice as much as anticipated. The 8.5% central bank base rate is now back to its level before a 300-basis point hike last October 22nd, which had been taken in response to a sharply depreciated forint and a related boost in import price and overall consumer price inflation. While on-year inflation of 3.7% still lies above the 3.0% medium-term target, a statement released by monetary officials projects eventual sub-target inflation and leaves open the door to subsequent reductions in Hungary’s central bank rates. From a peak of 11.5%, officials earlier cut its rates by 50 basis points each last November 20, December 8, December 22nd and January 19th. Hungary is suffering through a severe recession. Real GDP contracted by 9.6% at a seasonally adjusted annual rate in the first quarter (down 6.7% on year), and industrial output is 22.1% lower than a year ago. Hungary has twin deficits amounting to 2.9% of GDP on the current account and nearly 4% of GDP on the budget. The forint had recovered 16% against the euro since March but fell after today’s bigger-than-expected easing.
Copyright Larry Greenberg 2009. All rights reserved. No secondary distribution without express permission.