Magyar Nemzeti Bank Cuts Hungary’s Central Bank Interest Rates

March 23, 2016

The Bank Rate had been cut by 490 basis points between August 2012 and July 2014 to 2.10% and by an additional 75 basis points in 15-bp increments from March 2015 through July 2015 but paused at 1.35% thereafter until now.  Easing was resumed at this month’s meeting of the Monetary Council, and the amount of cut in the base rate was again 15 basis points to 1.20%.  The overnight deposit rate was sliced and entered negative territory at -0.05%.  The overnight lending rate now becomes 1.45%.   Hungarian inflation is now 0.3%, well under the 2-4% target range.

In a statement of explanation, officials wrote, “a degree of unused capacity in the economy and inflationary pressures remain moderate for an extended period. The real economy has a disinflationary impact over the policy horizon. Based on the March Inflation Report projection, the time when the inflation target is met has lengthened as an effect of the persistently and substantially lower cost environment than earlier expected….  The Monetary Council remains ready to use every instrument at its disposal to contain second-round inflationary effects. Interest rate cuts will continue as long as monetary conditions become consistent with the sustainable achievement of the inflation target. In addition to the central bank base rate, the Monetary Council will henceforth also decide on the current levels of the overnight deposit and lending rates, that is the width of the interest rate corridor at its interest rate-setting meetings.”

Officials also noted that global uncertainties remain high and will be watched.

Copyright 2016, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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