Ninth Straight Central Bank Interest Rate Cut in Hungary

April 23, 2013

With political encouragement and newly installed leadership, the two-week repo rate of Magyar Nemzeti Bank was reduced by another 25 basis points to 4.75%.  It had been cut by that amount at the eight prior monthly policy meetings as well from a peak of 7.0% prevailing at the start of August 2012.  Officials justify a looser monetary policy despite exchange rate weakness because of the following factors.

  • Weak demand: “The Council expects weak demand conditions to persist.”
  • A negative output gap and continuing low inflation:  “Inflation is likely to remain below the 3% target throughout this year and settle close to the target value in 2014.”
  • Calmer financial markets: “Risk premia on Hungarian financial assets fell significantly, reflecting an improvement in the international environment.”

Monetary officials signaled that more interest rate relief is probable in coming months: “The Council will consider a further reduction in the policy rate if the medium-term outlook for inflation remains in line with the Bank’s 3% target and the improvement in financial market sentiment is sustained.”

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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