Magyar Nemzeti Bank Reduces Incremental Monthly Interest Rate Cut

January 21, 2014

A cut in Hungary’s central bank base rate has been implemented for the 18th straight month.  The first dozen starting in August 2012 were by 25 basis points each from a starting level of 7.0%.  The next five reductions totaled 20 basis points apiece, cutting the level from 4.0% to 3.0% after the December 17th meeting.  For the the second time, officials this month throttled back the size of the monthly easing, cutting the base rate by fifteen basis points to 2.85%, but a statement accompanying the action left no doubt that the policy bias remains toward further easing.  Inflation is projected to remain subdued both on a total and core basis because of an output gap that will persist until near the end of the central bank’s policy forecast period.  Risks associated with Fed tapering appear manageable, and GDP growth is projected to be more balanced.

In the Council’s judgement, there remains a significant degree of unused capacity in the economy and inflationary pressures are likely to remain moderate over a sustained period. Delivering price stability in the medium term points in the direction of monetary easing. The global financial environment remained supportive. A sustained and marked shift in perceptions of the risks associated with the Hungarian economy may influence the room for maneuver in monetary policy. Considering the outlook for inflation and taking into account perceptions of the risks associated with the economy as well as the improvement in the pace of economic growth, further cautious easing of monetary policy may follow, but a reduction in the increment has become warranted. 

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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