Hungarian Monetary Policy Eased
March 24, 2015
Magyar Nemzeti Bank’s Base Rate was cut by 15 basis points to 1.95%. This was the first reduction in eight months, and officials left the door open for the possibility of even more reductions ahead despite a baseline scenario calling for robust growth, a gradually diminishing output gap, and consumer price inflation convergence upon an in-target 3.0% by the end of the forecast period. The rationale in a released statement today for cutting rates now is greater downside risks to inflation that are associated with the baseline view.
The real economy is likely to have a disinflationary impact at the policy horizon and the negative output gap is expected to close only gradually. Based on data becoming available previously, the probability of second-round effects taking hold in the wake of the change in inflation expectations has increased. The Council judges that, after reviewing the March Inflation Report, the outlook for inflation and the cyclical position of the real economy point in the direction of a reduction in the policy rate and loose monetary conditions for an extended period. Cautious easing of monetary conditions may continue as long as it supports the achievement of the medium-term inflation target.
From 7.0% prior to August 2012, central bank officials cut the Base Rate at 24 consecutive meetings through July 2014, moving at a pace of 25 basis points per meeting for the first year and then tapering off the incremental cuts gradually in the second half to 10 basis points at the March, April and May meetings of 2014. The July 2014 reduction was 20 basis points and accompanied by a signal that rates would be steady after that. Until now, that is.
Copyright 2015, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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