Another 50-Basis Point Rate Reduction in Hungary

October 19, 2009

The Magyar Nemzeti Bank reduced Hungary’s Base Rate by 50 basis points to 7.0%, matching analyst expectations.  Four cuts since July 27 total 250 basis points.  There was also a 50-bp reduction in January, two cuts of 50 bps each in December and one of 50 bps in November.  What a difference a year makes!  With the forint under heavy pressure, the base rate had been increased by 300 bps from 8.5% to 11.5% on October 22, 2008.  The exchange rate is now around 10% stronger against the dollar than a year ago.

Central bank officials released a statement observing that inflation had been lower last quarter than it anticipated and that economic growth prospects remain vulnerable to possible shocks despite improved financial markets.  A 4.9% increase of consumer prices in the year to September reflects indirect tax increases but was still down from 5.0% in August and 5.7% in September 2008.  The statement implies that rates are likely to be lowered further unless inflation takes an unexpected turn for the worse.  But now, officials perceive a growing chance that inflation will dip below the 3% target in the medium term.  Hungary remains in recession.  GDP fell 7.5% in the year to 2Q, industrial output plunged 19.9% in the year to August, and the jobless rate is just a tenth under 10%.

Copyright Larry Greenberg 2009.  All rights reserved.  No secondary distribution without express permission.


Comments are closed.