Hungarian Monetary Council Retains a 6.0% Base Rate

May 16, 2011

As they had done at prior meetings on February 21, March 28 and April 18, policymakers at the Nemzeti Magyar Bank left their benchmark interest rate at 6.0%.  The March and April decisions had been unanimous in spite of above-target inflation.  Following a 300-basis point rate hike in October 2008, the base rate was reduced 14 times in all, totaling 150 basis points in 4Q08, 350 bps during 2009, and 25 bps in each of the first four months of last year to a cyclical low of 5.25%.  Rate hikes of 25 basis points apiece were implemented this past November, December and January.

A new statement from the central bank released today stresses the significant extent of unused productive resources and asserts that CPI inflation of 4.7% last month after 4.5% in March should as a result trend downward eventually and be near to the 3% target even if interest rates are not hiked further.  The current inflation overshoot reflects cost-push pressures caused by higher prices for food and energy.  Faced with the same situation, ECB officials fear second-order effects from above-target inflation, but Hungary’s monetary policymakers believe that inflation risks remain balanced because growth risks are skewed to the downside.  The street consensus on growth in Hungary is only about 3% per annum this year and next, and that expansion will be most export-led.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.



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