Hungarian National Bank

February 23, 2016

The central bank monetary council agreed again to leave Hungary’s base rate at 1.35% but left the door open to possible further easing of an already accommodative stance.  In any case, there will not be any tightening in the forecast policy horizon since expected inflation is at an historic low according to a released statement.  A negative output gap will continue until near the end of the period.  Likewise, inflation is expected to converge on the 3% target only around that same time.  The statement observes a deterioration of global financial markets but asserts, “Hungary‚Äôs persistently strong external financing capacity and the resulting decline in external debt are contributing to the sustained reduction in the vulnerability of the economy.”

Five straight monthly base rate cuts of 15 basis points each from March through July of 2015 cut the base rate to 1.35% from 2.10%.  Previously, policy was eased progressively over a two-year stretch from 7.0% at the start of August 2012 to 4.0% by July 2013 and 2.10% in July 2014.  In the first year, the pace of reduction was 25 basis points per month, but it slowed in the second year to 20 bp per month, then 15 bp per month and 10 bp per month.  A larger 20-basis point cut in July 2014 ushered in an 8-month hiatus before the final series of 15-bp moves last year.

Copyright 2016, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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