Another 50-Basis Point Rate Reduction in Hungary
October 19, 2009
The Magyar Nemzeti Bank reduced Hungary’s Base Rate by 50 basis points to 7.0%, matching analyst expectations. Four cuts since July 27 total 250 basis points. There was also a 50-bp reduction in January, two cuts of 50 bps each in December and one of 50 bps in November. What a difference a year makes! With the forint under heavy pressure, the base rate had been increased by 300 bps from 8.5% to 11.5% on October 22, 2008. The exchange rate is now around 10% stronger against the dollar than a year ago.
Central bank officials released a statement observing that inflation had been lower last quarter than it anticipated and that economic growth prospects remain vulnerable to possible shocks despite improved financial markets. A 4.9% increase of consumer prices in the year to September reflects indirect tax increases but was still down from 5.0% in August and 5.7% in September 2008. The statement implies that rates are likely to be lowered further unless inflation takes an unexpected turn for the worse. But now, officials perceive a growing chance that inflation will dip below the 3% target in the medium term. Hungary remains in recession. GDP fell 7.5% in the year to 2Q, industrial output plunged 19.9% in the year to August, and the jobless rate is just a tenth under 10%.
Copyright Larry Greenberg 2009. All rights reserved. No secondary distribution without express permission.
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