Twelfth Straight Interest Rate Cut in Hungary

July 23, 2013

Magyar Nemzeti Bank’s two-week repo rate was sliced to 4.0%.  This was the 12th monthly reduction in a row, a streak that started last August with a cut to 6.75% from 7.0%.  The severity of Hungary’s recession seems to have lessened, and inflation of 1.9% last month remained below the 3.0% target.  The dollar hasn’t been shut for more easing, since officials maintain that considerable slack in Hungary’s economy will continue exerting downward pressure on inflation.  By the same token, however, a signal was sent that the pace or rate reduction may slow.  A statement on the central bank website concludes,

In the Council’s judgement, there is a significant degree of spare capacity in the Hungarian economy and inflationary pressures are likely to remain moderate even over the medium term. Data becoming available over the past month confirm that weak demand has exerted a strong disinflationary impact, and therefore companies have limited ability to pass on higher production costs into prices. Consequently, easier monetary policy will ensure that the 3 per cent inflation target is achieved. However, global financial markets have been volatile recently. A sustained and marked shift in perceptions of the risks associated with the economy may influence the room for manoeuver in monetary policy. The significant reductions in interest rates so far and the volatile conditions in financial markets may justify changing the pace or extent of policy easing over the coming months.

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

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