Another 15-Basis Point Central Bank Rate Cut in Hungary

April 26, 2016

Magyar Nemzeti Bank cut its base rate to 1.05% from 1.20%.  The rate had been frozen at 1.35% from July 2015 until last month’s meeting when a similar-sized rate cut was implemented in conjunction with a significant downwardly revised inflation projection.  A statement released today concludes that “the sustainable achievement of the inflation target points to a further slight reduction in the policy rate.”  That conclusion is built on the following premises:

There continues to be 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. If the assumptions underlying the March Inflation Report projection hold, inflation will approach the 3 per cent target only in the first half of 2018.

Core inflation rises gradually as a result of the recovery in household consumption and the pick-up in wages. Inflation expectations remain at historically low levels.

Hungary’s strong external financing capacity and the resulting decline in external debt are contributing to the sustained reduction in the vulnerability of the economy. In the Council’s assessment, a watchful approach to monetary policy is still warranted due to uncertainty in the global financial environment.

Monetary officials left the -0.05% deposit rate and 1.30% lending rate unchanged.  Prior to August 2015, the base rate had been cut by 490 basis points from August 2012 through July 2014 and a further 75 bps from March 2015 through July 2015.

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



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