Hungarian Monetary Policy Remains Paused

June 21, 2010

The Magyar Nemzeti Bank did not cut its 5.25% key interest rate for a second straight month, citing perceived risks associated with Hungarian fiscal assets and inflation.  A statement from officials projects export-led economic growth with domestic demand lagging.  Inflation is presently above target but already had receded to 5.1% in May from 5.9% in March and is projected to be within target in 2011.  In October 2008 when several central banks began a series of steep rate cuts, Hungary’s policy rate was increased 300 basis points to 11.5%.  As conditions surrounding the forint improved, the rate was thereafter cut 50 bps in November 2008, twice by 50 bps each in December, and by 50 bps in January 2009.  After a half-year pause, it was reduced by 50 bps each in July through November and then by 25 bps each in December through April 2010.  Hungary has a jobless rate of nearly 12%, and real GDP in 1Q was only 0.1% higher than a year earlier although such expanded 3.6% at an annualized quarterly rate in 1Q10.  Hungary’s budget is in the red by about 5% of GDP.

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

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