Magyar Nemzeti Bank Winds Up Interest Rate Reduction Cycle

July 22, 2014

Hungary’s central bank declared an end to a 2-year easlng cycle after cutting the key rate by more than expected.  A greater-than-forecast reduction of 20 basis points in the bank interest rate to 2.1% put an end to a streak of cuts that included 12 reductions of 25 basis points, 6 of 20 bps, 2 of 15 bps, and 4 of 10 bps.  A released statement afterward concludes by also indicating that many more months are likely to pass before rate normalization begins,

There remains a degree of unused capacity in the economy and inflationary pressures are likely to remain moderate for an extended period. The negative output gap is expected to close gradually at the monetary policy horizon. In the Council’s judgement, it was justified to end the easing cycle because of the need to remove uncertainty about the bottom of the interest rate path, and the medium-term achievement of price stability made it necessary to implement a further 20 basis point reduction in interest rates. The Council judges that the central bank base rate has reached a level which ensures the medium-term achievement of price stability and a corresponding degree of support for the economy. That means that the two-year easing cycle of a significant cumulative reduction of 490 basis points has ended. Looking ahead, the macroeconomic outlook points in the direction of persistently loose monetary conditions.

On-year CPI inflation was below zero for the first time in 46 years during each month of the second quarter.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without epxress permission.



Comments are closed.