Analysts Surprised by Central Bank Decision in Hungary

January 24, 2012

Officials at Magyar Nemzeti Bank had raised their key base rate by 50 basis points each on November 30 and December 20 and were expected to do such a third time at today’s first policy meeting of 2012, but they instead left such unchanged at 7.0%.  In all, there have been five rate hikes thus far, including three 25-bp moves in November 2010, December 2010 and January 2011.  Fourteen prior cuts from November 2008 through April 2010 had slashed the rate from 11.5% to 5.25%.

A new statement has been posted on the central bank website that forecasts no economic growth in 2012.  The Hungarian forint had weakened sharply amid mounting investor concerns about the authoritarian predisposition of Hungary’s elected officials.  Some of that concern has lessened recently but officials at the central bank remain on guard: "If perceptions about the economy and the outlook for inflation deteriorate significantly further, it may prove necessary to raise interest rates again."  Containing inflation, which dipped to 4.1% in December but remains above target, remains a high priority.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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