Hungarian Monetary Policy Left Unchanged Again

February 28, 2012

A statement from the Monetary Council of Magyar Nemzeti Bank after leaving its benchmark base rate unchanged for a second straight month stressed the need to counter uncertainty and market volatility: "High volatility of financial markets over the recent period continues to warrant a cautious policy stance."  Like the January meeting in which a vote for no change resulted from a 4-person majority of the more junior committee members against three votes for a 50-basis point rate hike, today’s decision likely sprung from a split decision.  To be sure, the forint has appreciated this year following its record low against the euro last quarter, credit conditions are tighter, and real GDP growth slowed in 4Q11 to 0.3% at an annualized rate and 1.5% on year.  However, CPI inflation jumped to a 21-month high last month of 5.5%, reflecting a VAT increase, higher excise duties, and greater core inflation.  Also, Hungary’s government has not yet secured a debt deal with the IMF. 

An initial IMF deal in October 2008 mandated a large interest rate hike to 11.5%.  Fourteen subsequent cuts totaling 625 basis points were implemented from November 2008 through April 2010.  The current tightening cycle has produced five increases so far:  25 basis points each in November and December 2010 and January 2011 and two moves of 50 bps in November and December of last year.  Analysts had predicted a third such increase last month but correctly anticipated a decision to "wait and see" further this week.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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