Hungary’s Monetary Policy Easing Cycle Approaching Endpoint

March 25, 2014

The incremental cut of the two-week deposit rate, a drop of 10 basis points to 2.60%, was reduced from 15 bps after the January and February monthly meetings, 20 bps each in the final five months of 2013, and 25 bps per month over the year to July 2013.  The rate level prior to August 2012 was at 7.0%.  The latest statement released by Hungary’s Monetary Council projects CPI inflation this year staying below the 3% target but anticipates a slower pace of disinflation and warns of greater externally-generated forces that could weaken the forint or lift long-term interest rates.

In the Council’s judgement, there remained some scope for a cautious reduction in interest rates in the context of heightened uncertainty in global financial markets; however, a smaller reduction in interest rates than previously was warranted by the increase in uncertainty. Considering the substantial reduction in interest rates so far, changes in perceptions of the risks associated with the economy and based on currently available information, the central bank base rate has significantly approached a level which ensures the medium-term achievement of price stability and a corresponding degree of support for the economy. In case of a significant deterioration in global financial market environment, the Council will see no scope for continuing the easing cycle.

As a former East European satellite of the Soviet Union and being still dependent on Russia for imported gas, Hungary is especially susceptible to adverse news in the Ukraine crisis.  Parliamentary elections are scheduled early next month.

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



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