Eighth Straight Month to See a Central Bank Rate Cut in Hungary

March 26, 2013

Under newly appointed Governor Matolcesy, who has surrounded himself with like-minded monetary doves, the monetary council of Magyar Nemzeti Bank implemented another 25-basis point cut of its two-week deposit rate.  The new level of 5.0%, down from 7.0% prior to last August, is a record low, eclipsing the 5.25% level in April 2010.  The custom of holding a post-meeting press conference was abandoned, but a written statement was released that observed “a significant degree of spare capacity in the economy,” asserted that such is creating disinflation, and predicted “the 3 per cent target can be met with looser monetary conditions.”  Today’s cut was made in spite of continuing weakness in Hungary’s currency, which officials said is not supported by Hungarian fundamentals.  The statement says that “Recent financial market tensions have led to fluctuations in Hungarian asset prices” that constrain the scope to reduce interest rates even more aggressively than has been done.  More easing is sought. “The Council will consider a further reduction in interest rates if medium-term inflationary pressures remain moderate and the uncertainty surrounding financial market developments diminishes.”

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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