Hungary Gets 11th Consecutive 25-Basis Point Central Bank Interest Rate Reduction

June 25, 2013

The Magyar Nemzeti Bank Council, which meets monthly, approved a a 25-basis point cut in the two-week deposit rate in each of the final five months of 2012 and in every month of the first half of 2013.  BUT, today’s action was accompanied by an amber light that cuts in the future may become less automatic.

As long as the outlook for inflation and the real economy justifies it, interest rates can be reduced further; however, increased caution is warranted in the volatile and rapidly changing global environment. A sustained and marked shift in perceptions of the risks associated with the economy may influence the room for maneuver monetary policy.

A statement projects that inflation, abstracting from indirect tax hikes, will stay below the 3% target and that inflation probably will ease further in the near term.  Hungary’s economic growth resumed this year, and the current account and government finances have improved.  The degree of spare capacity is one uncertainty in the forecast, and a “marked deterioration in the financial environment may limit the room in which monetary policy can maneuver.

The key interest rate was at 7.0% prior to August 2011 and is now at 4.25%.  The rate of change has been gradual, but the cumulative swing has been substantial for an economy whose rates had previously lagged the reduction of other regional central bank rate declines.

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

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