The monetary council of Hungary's central bank decided on May 28 to cut the base rate by 0.25bps to a new historic low of 4.50%, the bank said in a statement on its website. This was the tenth consecutive reduction and the decision was broadly expected by market analysts.
The rate setters consider that recent downward trend in underlying inflation continues to reflect the strong downward pressure of weak domestic demand on prices. Developments in energy and commodity prices as well as the forint exchange rate have also contributed to the disinflation process. The council expects that the inflation risks will remain moderate in the medium term.
The central bank confirmed its previous projections for the economic growth to to resume in 2013. The Hungarian economy may recover from recession already the first half of 2013. A sustained pick-up in growth is likely to occur from the end 2013 as demand in Hungary’s export markets improves.
The rate setters concluded that perceptions of the risks associated with the economy have improved. However, the contrast between the benign financial market environment and the weak outlook for global growth continues to pose a risk, which warrants a cautious approach to policy. The council will consider a further reduction of interest rates if the medium-term outlook for inflation remains in line with the bank’s 3% target and the improvement in financial market sentiment is sustained.
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