Hungary c-bank cuts key rate again, in line with expectations.

By bne IntelliNews January 30, 2013
The monetary council of Hungary's central bank decided on January 29 to cut the base rate by 0.25bps to 5.50%, which was the sixth consecutive reduction since July 2012, the bank said in a statement on its website. The decision was broadly expected by market analysts, who believed that the council's four non-executive members appointed by the parliament will again outvote the bank's governor and his two deputies, as they did in the previous five meetings. Rate setters also discussed a proposal to keep the base rate on hold. The council concluded that persistent weak domestic demand would dominate once the effects of last years cost shocks wane, thereby helping to meet the inflation target. The improved global financial market environment and the governments commitment to maintaining a low fiscal deficit path may contribute to a sustained decline in the risk premia on domestic assets. These factors warranted and allowed a further cautious easing of the monetary conditions. Moreover, the rate setters reiterated their opinion that it is crucial for the government to sign a financial aid agreement with the IMF and EU. In a statement on Jan 28, the IMF said that further monetary easing should be considered very cautiously. The central bank forecast that the economic growth is likely to resume in 2013 helped by a recovery in the countrys export markets. At the same time, the weakness in investment and persistently high unemployment suggest that the potential growth rate of the economy is significantly below its pre-crisis level.

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