Hungarian Base Rate Kept at 9.5%
June 22, 2009
Magyar Nemzeti Bank retained a 9.5% policy rate for a fifth consecutive monthly meeting. Four cuts of 50 basis points (one each in November and January and two in December) did not offset a 300-basis point hike last October as a term to receiving an IMF-led aid package. Hungary is in a deep recession, with GDP last quarter contracting by 9.6% saar and 6.7% from the first quarter of 2008. Industrial production is 25% smaller than a year ago. No convincing recovery is expected until the year after next.
A statement released by the central bank anticipates higher inflation in the near term due to indirect tax increases but a decelerating pace thereafter. The statement leaves the door open for possible rate cuts down the road.
A vulnerable exchange rate constrains the central bank’s scope for easier monetary policy. Hungary has a fiscal deficit of around 4% of GDP, and an external deficit near 3% of GDP. The forint has depreciated more than 20% against the dollar over the past year. The weakness of East and Central European economies like Hungary poses a risk to banks in Germany and other Economies in Euroland.
Copyright Larry Greenberg 2009.
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