Another 25-Basis Point Cut in Hungary’s Central Bank Rate

January 25, 2010

The Magyar Nemzeti Bank two-week deposit rate was cut from 6.25% to a 44-month low of 6.0%, bringing the cumulative decline since mid-2009 to 350 basis points.  The key rate was also reduced by 25 bps last month after cuts of 50 bps each in August, September, October and November, and an initial reduction of 100 basis points last July.  Hungary’s recession extended past mid-2009, but CPI on-year inflation of 5.6% in December showed a further increase from 5.2% in November.  The clinching factor allowing today’s additional easing of policy was probably the 1.9% rise of the forint against the euro since the December policy meeting.  A statement released today blames higher inflation on indirect tax hikes, projects inflation well below the 3% target in the coming 1-2 years, predicts a resumption of growth by the middle of this year, and declares that, “even if justified by the outlook for inflation and the economy, interest rates may only be reduced further if changes in perceptions of risks associated with the economy allow it.”

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.



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