Hungary c-bank cuts base rate to record low of 4.75%, in line with expectations.

By bne IntelliNews April 24, 2013

The monetary council of Hungary's central bank decided on April 23 to cut the base rate by 0.25bps to a new historic low of 4.75%, the bank said in a statement on its website. This was the ninth consecutive reduction. The decision was broadly expected by market analysts, although a 0.5pps cut also expected.

The rate setters considered that inflation fell below the central bank’s inflation target already at the beginning of 2013 due to reduced utilities prices and the strong downward pressure stemming from  subdued demand. The outlook for inflation and the real economy point to a further easing in monetary conditions.

The central bank expects economic growth to resume in 2013 as the country’s export markets improve. However, the external and, to a greater extent, domestic demand factors point to only modest growth. Although household real income growth is expected to recover in the low inflation environment, households consumption behaviour is likely to be cautious and the saving rate to remain high and therefore consumer demand is likely to strengthen only from 2014.

The rate setters concluded that risk premia on Hungarian financial assets fell significantly, reflecting an improvement in the international environment. However, the contrast between the benign financial market environment and weak real economic activity still remains, which warrants a cautious approach to policy. The council will consider a further reduction in 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.

Related Articles

Finland gives final nod to construction of Nord Stream II

Finland has issued a second and final permit for the construction of the controversial Nord Stream II pipeline that is to pump gas from Russia directly to Germany via a Baltic Sea route, the Regional ... more

Lufthansa's arrival lifts economy of Hungary's second city

Three large German companies have chosen to invest in Debrecen, Hungary's second-largest city, since Lufthansa launched its first direct flight two years ago, it was announced on April 11.  ... ... more

Hungarian opposition parties bet on strong election turnout as cooperation talks stall

Green opposition party Politics Can Be Different (LMP) has suspended talks with fellow opposition parties after they failed to reach a cooperation agreement ahead of the April general election.  ... more

Dismiss