Hungarian Central Bank Rate Sliced Another 50 Basis Points

November 23, 2009

Global monetary policies are no longer moving in the same direction. In Hungary, where domestic demand continues to slump significantly and sub-target inflation in 2010 is possible as a result, the Magyar Nemzeti Bank cut its benchmark policy rate on two-week bills by an as-expected further 50 basis points to 6.5%, which is a 41-month low.  If not for the possibility of a new wave of global risk aversion that could subject the forint to fresh selling pressure, officials might have agreed upon a bigger cut.  Some policymakers had preferred more aggressive easing at the previous October meeting.  Hungarian GDP was 8.0% lower in 3Q than a year earlier and fell 7.0% annualized last quarter despite strengthening export demand.  Industrial production is down 15% from a year ago, and retail sales posted a 12-month drop of 7.3%, the most since at least 1998.  Hungary’s jobless rate of 10.3% is similar to the U.S. level.  A statement from monetary officials released today indicates that while the 4.7% rate of CPI inflation may tick upward in the very near term, it is at risk of falling below the 3% target in 2010, and positive GDP growth is not expected to resume until the second half of next year. 

From a peak of 11.5% after a 300-bp increase in October 2008 when the forint was sinking fast, officials implemented cuts of 50 basis points each last November, twice in December, and once in January.  Policy then paused for six months before a cut of 100 basis points in July followed by reductions of 50 bps in August, September, October and now November.  There will be more rate cuts in the future.

Copyright Larry Greenberg 2009.  All rights reserved.  No secondary distribution without express permission.

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